Peg Stability Module

What is the Peg Stability Module?

The Peg Stability Module (PSM) is one of the mechanisms responsible for maintaining the USDH peg. The PSM is designed to facilitate fixed-rate swaps between stablecoins, with the express purpose of allowing for seamless arbitrage between USDH and another stablecoin.

Initially, the PSM will allow for swaps between USDH and USDH. The PSM will have zero-slippage, making it more attractive for arbitrageurs to use the PSM instead of the open market.

The PSM functions like a vault with a 0% Stability Fee and 100% LTV. However, instead of users retaining ownership of their USDC while borrowing USDH, the USDC is swapped directly for USDH.

Why a straight-swap instead of accepting stablecoin collateral?

Accepting stablecoin collateral in high-LTV vaults is possible. However, as was experienced by MakerDAO, the Stability Fees on these vaults run the risk of pushing the vaults over the 100% LTV ratio, thus pushing the debt higher than the collateral assets backing the debt.

What are the fees involved with the PSM?

Users can take two actions in the PSM: Deposit another stable and mint USDH, or deposit USDH and redeem another stable.

Initially, the fees will be:

• 0 bps (0%) for depositing another stablecoin to mint USDH

• 50 bps (0.5%) for depositing USDH to redeem another stablecoin

What are the risks of the PSM?

The primary risk is that Hubble will take in another stablecoin when USDH is below peg. This means that USDH effectively becomes "backed by" this stablecoin. Initially, the only stablecoins in the PSM will be USDH and USDC.

The risk of taking on large amount of USDC is that USDC accounts are susceptible to being frozen. We acknowledge this risk, and believe that it is worth making this trade-off if it implies a strong peg for USDH.

What are the benefits of the PSM?

The primary benefit is that the risk-free, zero-slippage mechanic of the PSM allows for frictionless arbitrage, making it easier for arbitrage to take place on USDH.