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Pegging

Sweep protocol adjusts interest rates and borrow limits to bring SWEEP to the target price.

Real-time adjustment: Borrow limits

Borrowing (supplying) of new SWEEP is disabled when the price is less than the target.
Borrow limits may be increased dynamically when price is above target.

Weekly adjustment: Rates, borrow limits, and calls

Sweep protocol actively adjusts supply and demand once per week. The weekly cycle fits into the workflow of securities traders who may face settlement cycles that are several days long.
DeFi assets or "on-chain assets" and arbitrageurs will help keep the peg in real time, with knowledge that they can sell into the weekly rebalancing.
Sweep uses a Balancer contract to adjust supply and demand. The logic on the Balancer contract will be optimized.

When SWEEP demand is low (dollar demand is high) and price < target

  • The Balancer will increase the target interest rate
  • The Balancer can force repayment by calling Stabilizer loans. According to the Sweep code and off-chain agreements, the protocol has the right to demand repayment, with delays of between 0 and 6 days. Some assets will automatically return money in real time.
Forced repayment is a strong tool for bringing the market price back up to the target price. This reduces risk for savers. When borrowers repay, they must buy back SWEEP, reducing the supply and pushing up the price.

When SWEEP demand is high and price > target

  • The Balancer will reduce the target interest rate. These reductions will become more aggressive if the price is above peg for multiple weeks.
  • The Balancer will become more aggressive about increasing borrow limits.
The Balancer does not have strong tools to bring price back down to peg. SWEEP can avoid sustained periods above peg by:
  • Allowing negative interest rates
  • Offering borrowers a wider range of strategies. Borrowers can make a wide range of strategies acceptable to SWEEP holders by adjusting capital ratios (to cover risk) and spreads (to cover liquidity)

Long term adjustment: interest rates

The goal of interest rate adjustment is to find a neutral interest rate that balances demand from savers with demand from borrowers. As the system becomes safer and more efficient, this rate is likely to approach the SOFER rate.

Raising the interest rate

Raising the interest rate tends to increase the price of SWEEP. Savers will have an incentive to buy more SWEEP. Borrowers will have an incentive to reduce borrowing (supplying) of SWEEP.

Lowering the interest rate

Lowering the interest rate tends to reduce the price of SWEEP. Savers will have an incentive to buy less SWEEP. Borrowers will have an incentive to increase borrowing (supplying) of SWEEP.

Making a market

The rate that borrowers will pay to invest in money market strategies is capped by short term money market rates. If savers demand rates that are higher than the prevailing rate, borrowers will start redeeming assets. The protocol will shrink, or it will divert funding to a different asset class.

TODO: Weekly batch match

The protocol will offer a weekly batch match to settle large transactions without AMM transaction costs.
Participants can post orders to buy SWEEP, with attached USDC, or orders sell SWEEP, with attached SWEEP. The balancer will match buy and sell orders and settle them at the target price.
The batch-match allows the protocol to increase cash efficiency by keeping less un-invested USDx in the AMM. It eliminates AMM costs related to slippage, MEV, and "taker" risk.
It will be an effective way to settle transactions when the market price is near the target price. If the market is not near the target price, participants will place only buy orders or only sell orders. That gives the balancer more data to drive the weekly rate and borrow adjustments.