Stability
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We will use a protocol reserve as our primary stability mechanism. During normal operation, ESD can be minted and redeemed 1-to-1 with USDC.
ESD can always be minted from the reserve for 1 USDC
ESD can always be burned in the reserve for RR USDC, where RR is the current reserve ratio capped at 1.00 .
The reserve ratio is the ratio of the USDC-denominated value of the reserve over the currently issued ESD. During normal operation this ratio will equal or exceed 100%.
In extenuating circumstances like an exploit or a bug, the ratio may drop below 100% . In this case the redemption price is pro-rated such that redeeming earlier does not guarantee an optimal exit result. This prevents bank runs in times of uncertainty to allow the protocol time to recover if possible.
In addition to acting as a seignorage share and governance token,ESS can backstop the reserve for the protocol.
At any time, governance may vote to mint and sell ESS to raise RR if it drops below its expected operating value.
