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Peg Stability Module

The Peg Stability Module (PSM) is responsible for helping the Volt Protocol keep its peg at $1. The PSM is a stability mechanism, that is used to bring other existing liquidity venues back to the peg.

The FEI PSM is a contract which holds a reserve of assets in order to exchange FEI at $1 of other assets with a fee. There are two allowed actions mint() - buy FEI for $1 of assets plus a fee and redeem() - sell FEI back for $1 of assets, minus a fee. The current PSM's external asset is DAI so on mint, a user provides DAI, and the protocol gives FEI. On redeem, the user provides FEI, and receives DAI.

The contract has a reservesThreshold of external assets meant to stand ready for redemptions. The PSM has a reserve threshold, which is the maximum target amount of asset to hold. Any assets above the reserve threshold can be sent into the PCV using allocateSurplus().

PSM Interfaces

The contract implements the following interfaces:

  • PCVDeposit - to track reserves and balances
  • OracleRef - to determine price of the asset
  • RateLimitedMinter - to stop infinite mints and related issues.

PSM Fees

The PSM currently charges the following fees:

  • 0 basis point fee on mint to allow Volt holders to mint Volt for the underlying assets with 0 friction.
  • 0 basis point fee on redeem to allow Volt holders to redeem Volt for the underlying assets with 0 friction.

Design Iterations

Previous iterations of the PSM used an oracle to determine the DAI price. However, this architecture was flawed and mostly resulted in Fei Protocol receiving toxic flow from MEV bots. The newest PSM currently in use for DAI and USDC assumes both stablecoins are always $1.

PSM Architecture Diagram

FEI PSM Architecture