Functioning of the Protocol

After locking up Bitcoin as collateral in a smart contract on Botanix Network, user’s can create an individual position called a “Trove” and use it to mint $PUSD. Any owner of $PUSD can redeem their stablecoins for the underlying collateral at any time. The redemption mechanism along with algorithmically adjusted fees guarantees a minimum stablecoin value of $1.

To maintain pegging stability, Palladium utilizes a unique liquidation mechanism that relies on an incentivized stability pool and a redistribution cycle from riskier to safer Troves. This mechanism ensures stability even when the collateral ratio drops as low as 110%. Instead of relying on active governance or monetary interventions, the protocol maintains peg stability through economically driven user interactions and arbitrage.

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