Introduction
Currently $XAI price is hard-coded to $1 in the Silo Protocol. In other words, 1XAI==$1 at all times. We use Chainlink ETH/USD to price XAI. The reason behind this logic is that it would create arbitrage opportunities. Please read more here. With the recent USDC Volatility, the assumption fell short of reality.
The normal DeFi state for the Silo protocol is:
- The current USDC price is 1$ in DEXs, CEXs → USDC can be bought or redeemed for 1$.
- XAI price is equal to the USDC price in DEXs → Users can swap XAI to USDC 1:1 and vice versa.
We propose that we peg XAI to USDC (1XAI=1USDC) by changing XAI’s price feed to Chainlink ETH/USDC.
The table below describes the consequences of two scenarios in the case of USDC de-peg. The first column represents current solution for XAI price, and the second one is the proposed solution.
Risks table
Conclusion
Keeping the price of XAI fixed to 1$ has risks of temporary price manipulations in case of hard USDC de-peg (USDC goes to 80/85c and below). Fixing the price of XAI to be equal to USDC price removes risks and protocol works as expected.
In the case of USDC de-pegging, the change will affect the XAI price in DEXs, however, it removes all possible risks to depositors and borrowers of other assets in the Silo protocol.