BAI Stablecoin

BAI Stablecoin


Key Metrics

Real Volume (24H)$4,410.87
Fully Diluted Valuation$2,033,774
ATH Date11/9/2022, 11:53:49 PM
ATL Date8/3/2022, 6:31:48 AM
Circulating Supply2.1M
Total Supply2.1M
Popularity Rank1459
What is BAI Stablecoin?

Maintaining the stability of a system is critical to its survival, and the Stability Pool is a vital tool in achieving that goal. By acting as a source of liquidity to repay debt from liquidated Vaults, the Stability Pool ensures that the total BAI supply is always backed. In this article, we will explore how the Stability Pool functions and its relationship with redemptions.

The Stability Pool is a mechanism in the AstridDAO protocol designed to maintain the solvency of the system. It acts as a first line of defense in case of any liquidity shortfall in the protocol. The pool achieves this by providing liquidity to repay debt from liquidated Vaults. This ensures that the total BAI supply remains backed, and the system remains stable.

When any Vault is liquidated, an amount of BAI equivalent to the remaining debt of the Vault is burned from the Stability Pool's balance to repay its debt. In exchange, the entire collateral from the Vault is transferred to the Stability Pool. The Stability Pool is funded by users transferring BAI into it, also known as Stability Providers.

Over time, Stability Providers lose a pro-rata share of their BAI deposits, while gaining a pro-rata share of the liquidated collateral. However, because Vaults are likely to be liquidated at just below the minimum collateral ratios, it is expected that Stability Providers will receive a greater dollar-value of collateral relative to the debt they pay off. They can decide to immediately cash out and take the profit.

A redemption is the process of exchanging BAI for the collateral asset, such as ASTR, at face value. In other words, for every x BAI, you get x dollars worth of the collateral asset in return. Users can redeem their BAI for the collateral asset at any time without limitations. However, a redemption fee might be charged on the redeemed amount.

For example, let us consider ETH as collateral. Suppose the current redemption fee is 1%, and the price of ETH is $500. If you redeem 100 BAI, you would get 0.198 ETH (0.2 ETH minus a redemption fee of 0.002 ETH).

It is important to note that the redeemed amount is taken into account for calculating the base rate and might have an impact on the redemption fee, especially if the amount is large.

The ability to redeem BAI for the collateral asset at face value creates a price floor for BAI. The minimum collateral ratio for the corresponding asset creates a price ceiling for the asset. Together, they create arbitrage opportunities that ensure BAI closely follows the price of USD. We call these "hard peg mechanisms" since they are based on direct processes.

BAI also benefits from less direct mechanisms for USD parity called "soft peg mechanisms." One of these mechanisms is parity as a Schelling point. Since AstridDAO treats BAI as being equal to USD, parity between the two is an implied equilibrium state of the protocol. Another mechanism is the borrowing fee on new debts. As redemptions increase (implying BAI is below $1), the base rate also increases, making borrowing less attractive. This keeps new BAI from hitting the market and driving the price below $1.

The Stability Pool and redemptions are vital mechanisms in the AstridDAO protocol that ensure the stability and solvency of the system. The Stability Pool acts as a source of liquidity to repay debt from liquidated Vaults, while redemptions create a price floor for BAI. By closely following the price of USD, BAI maintains its stability and ensures the integrity of the protocol.


The investment information, comments, and recommendations provided here do not fall under the scope of investment consulting. Therefore, making an investment decision based solely on the information and comments provided here may not yield results that meet your expectations.

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