# Stabilization Mechanism

The Unitstable Cash protocol is designed to guarantee Unitstable Cash tokens to be exchanged at a value of a single US dollar, with the stabilizer (in-protocol stability mechanism) in charge of matching the supply of Unitstable Cash to their demand.&#x20;

Every 24 hours, the time-weighted average of the UAC-USDT exchange rate is read from the Uniswap contract, which is then fed into the Unitstable Cash protocol to be referenced by its stability mechanism.&#x20;

The stabilization mechanism is triggered whenever the price of Unitstable Cash is observed to be above / below (1+ε) USDT, where ε is a parameter that defines the range of price stability for the UAC token. On launch, ε is set to be 0.05.

## Contractionary Policy <a href="#contractionary-policy" id="contractionary-policy"></a>

At any point in time, Unitstable Bonds can be bought from the protocol in exchange for Unitstable Cash. Purchase of Bonds are performed at an algorithmically set price. With a Unitstable Cash oracle price of P USDT, bonds are sold off at a price of P UAC (effective price being P^2 USDT), promising bond holders a premium when redeemed. Purchased bonds can be converted to Unitstable Cash, insofar as the preconditions are met and the Treasury is not empty.&#x20;

Bonds can still be purchased even when Unitstable Cash trades above 1 USDT (P > 1), however this nets the purchaser a loss when redeemed. For example, when 1 UAC = 1.1 USDT, a Bond is sold for 1.1 UAC. Since all Bonds can only be redeemed for 1 Cash, this yields the purchaser a net loss. Thus, bond purchases are only expected to occur when 1 UAC trades below 1 USDT. Although bond purchases at a UAC price above 1 USD is allowed in the contract, it is disabled in the Unitstable Cash frontend to avoid user confusion.

## Expansionary Policy <a href="#expansionary-policy" id="expansionary-policy"></a>

If the price of Unitstable Cash is observed to be higher than (1+ε) USDT, the system mints circulatingSupply \*(oraclePrice-1) number of new Unitstable Cash tokens. The issued Unitstable Cash is either deposited to the Treasury or the Boardroom, depending on the Unitstable Cash balance of the Treasury.&#x20;

If the Treasury has a balance above 1,000 Unitstable Cash, then it is logical to assume that either all bonds have been already redeemed, or no bond holder is currently willing to perform a redemption. Either way, this signals that the demand for bond redemption do not exist at this time, and thus the freshly minted Unitstable Cash is given to the Boardroom contract.&#x20;

However, if the Treasury has a balance of below 1,000 Unitstable Cash, then it is assumed that there will be additional demand for bond-to-cash redemption. Therefore, the issued Unitstable Cash is routed to the Treasury so that Bond holders can exercise redemptions.
