Mechanics

How it works

When depeg cover is purchased, the strategic pool borrows the amount of its coverage (using flashloan) on Aave and swaps it for USDC on Curve Finance.

In the event of stablecoin depegging, the pool closes the position and compensates it with profits.

Exsample:

Assuming that one user purchases USDT depeg cover for the amount of 20,000 USDT at the pool where 10,000 USDC is deposited, the liquidity of the pool gets leveraged by using Flashloan as follows:

1. Borrow 20,000 USDC via Flashloan

2. Deposit 20,000 USDC to the Aave supply pool

3. Borrow 20,000 USDT from the Aave pool swap 20,000 USDT to USDC on Curve Finance.

4. Return 20,000 USDC of the flashloan debt If the depeg occurs