Peg Stability Module (PSM)

The Peg Stability Module (PSM) represents a critical component of Yala's stablecoin infrastructure, enabling a direct and efficient conversion mechanism between $YU and other stablecoins while generating protocol revenue.

Core Functionality

The PSM serves as a specialized monetary policy tool that:

• Facilitates seamless swaps between $YU and other stablecoins (such as USDC or USDT)

• Maintains the $1 peg by providing a reliable redemption path with minimal slippage

• Generates protocol revenue through fee-based operations

• Provides a capital-efficient alternative to BTC-collateralized minting

Dual-Collateral System

Yala's unique architecture allows $YU to be backed by either:

• BTC: Through the overcollateralized CDP (Collateralized Debt Position) system

• Stablecoins: Through the PSM's direct conversion mechanism

This dual-collateral approach enables greater stability and flexibility while preserving BTC as the primary backing asset.

Fee-Based Revenue Generation

The PSM implements a dual fee structure that contributes to Yala's sustainable revenue model:

• Fee In (Minting Fee): Applied when users swap peg tokens for $YU, generating revenue on inflows

• Fee Out (Redemption Fee): Applied when users exchange $YU back to peg tokens, creating yield on outflows

All collected fees are directed to the protocol's fee receiver, supplementing revenue from interest and liquidation penalties

Risk Management Controls

To ensure system stability, the PSM incorporates several protective mechanisms:

• Supply Cap: A configurable maximum limit on the amount of $YU that can be minted through the PSM, preventing over-reliance on non-BTC collateral

• Pause Functionality: Emergency controls allow governance to temporarily halt PSM operations during extreme market conditions

• Configurable Parameters: Governance can adjust fee rates and supply caps based on market conditions and protocol needs

User Interface

The PSM offers a straightforward interface for users:

• Buy Function: Allows users to provide peg tokens (e.g., USDC) and mint equivalent $YU stablecoins (minus applicable fees)

• Sell Function: Enables users to redeem $YU for peg tokens at the prevailing rate (minus applicable fees)

• Price Estimation: Provides accurate estimations of expected output amounts and fees prior to execution

Strategic Implementation

Within Yala's broader architecture, the PSM serves multiple strategic purposes:

• Liquidity Enhancement: Complements BTC-collateralized positions by providing immediate, deep liquidity

• Peg Defense: Acts as a first line of defense against price volatility, creating a hard price floor and ceiling

• Fee Optimization: Governance can adjust fee parameters to encourage either inflows or outflows based on current protocol needs

• Capital Efficiency: Provides users with additional flexibility in managing their positions across the protocol

This module synergizes with Yala's core yield infrastructure, providing a stable foundation for multi-chain yield strategies while ensuring the $YU stablecoin maintains its peg even during periods of market stress.