Defence Against Sell Pressure

One of the key elements often overlooked in algorithmic stablecoins is the soft peg mechanism. For a stablecoin to truly serve as a reliable store of value, it must closely track its target value at all times. Even a slight deviation, say from 0.995 to 1.05 (a 10% shift), can reduce confidence in RoeUSD being a reliable store of value of economic transaction. Monroe depends on this confidence for its growth so prioritising its defence is a key part in protocol design.

For Monroe, one of the key flows is users minting and selling stables to a pool composed of stables and token. A major concern will be how will we address peg stability when there is constant sell pressure. IF the token/RoeUSD price is higher than token/USDC price, we expect that users will stop leveraging. An equilibrium will be reached between the demand for leverage and the demand for savings.

As the project grows, RoeUSD can also be swapped for other stables to allow LPs to foresake their yield and farm elsewhere.

In a bullish market, users tend to leverage long, minting and selling the stablecoin, causing its value to drop to the hard redemption floor.

Conversely, in a bearish market, people seek to hold onto stablecoins, driving up demand and pushing the price higher. This scenario forces individuals to purchase the stablecoin at a premium during bearish times, only to sell it at a discount when the market turns bullish. This situation is not ideal.

By using LST/LRT as collateral, Monroe generates daily yield. Instead of distributing this yield with a fixed ratio, Monroe divides it between collateral owners and the USD savings pool based on the price of Monroe RoeUSD. This adjustment in distribution means that during a bull market, when there's pressure on the USD price, the yield distributed to the savings pool can be significant, incentivizing buyers. During a bear market, all the yield goes to vault holders, encouraging them to maintain more collateral and debt, or to repay their debt to withdraw assets.

This mechanism sets Monroe apart, as Liquity lacks yield, Lybra directs all collateral yield to eUSD holders, and Prisma allocates even more to incentivize various DEX vaults (debt APR > LST APR).