Automatic stabilizer and the Yala Foundation

In its initial phase, the Yala Foundation acts as a centralized entity under community oversight, tasked with ensuring $YU's stability, managing the lending script, setting lending rates, and signaling emergencies. Inscriptions in the system don't allow for post-issuance adjustments, leading to the creation of the Inscription Stablecoin Reserve Pool managed by Yala holders. These holders vote on system parameters and upgrades. Initial $Yala and $YU pool inscriptions come from the Foundation's unsecured mint. However, the Foundation can't alter the Y pool inscriptions and automates the $Yala and $YU pools' operations through the Automatic Stabilizer, mimicking the minting and burning process of tokens.

Credit process

The Yala Foundation will mint all $YU to the $YU Reserve Pool until reaching its max supply, then transition to the Stabilized Lending phase. In this phase, new $YU isn't directly minted; instead, an "extraMint" method simulates minting by transferring $YU from the Reserve Pool to borrowers. Repayments are redeposited into the Reserve Pool, mimicking the original minting phase. The Automatic Stabilizer automates withdrawals and deposits related to the Reserve Pool, managing the $YU Module throughout.

Fig. 4. Automatic stabilizer on credit process

System stabilization process

The Automatic Stabilizer not only simulates $YU's minting and burning during the lending cycle but also utilizes Yala to preserve $YU's price stability amid liquidations, splitting the process into surplus and debt auctions. $YU's surplus originates from Loan Module management fees---essentially, the interest rate. Once a loan settles, any excess interest becomes surplus, announced alongside the module address. Keepers bid using Yala inscriptions, with the highest bid winning the surplus. The received $Yala is then placed into the $Yala Reserve Pool, mimicking the destruction of governance tokens to maintain economic stability.

Fig. 5. Automatic stabilizer on system stabilization process

During rapid collateral price declines, bidders may pay significantly less than their maximum willingness, resulting in the liquidation process generating less $YU than the loan's value. This triggers the Debt Auction phase of the Loan Module, which announces the total debt and its address for bids. Bidders use $Yala for their offers, with the auction favoring the lowest bidder. The winning bidder transfers $YU to the Loan Module, secured by bidding with $Yala. The Automatic Stabilizer then compensates the winner by drawing $Yala from the Reserve Pool, effectively simulating the minting of governance tokens.