Stargate DAO has passed a proposal to implement a new depeg protection module to replace SIP 12. The new module introduces new parameters to mitigate the risk of pool imbalances within the Stargate protocol in the event of a depeg.
Under the current module, the protocol can be arbitraged to create significant pool imbalances in the event of a slight stablecoin depeg. However, the new module taps on the Chainlink Oracle on BNB Chain “to provide a verified price for every coin within Stargate that is connected to a different asset.”
The improved module features three unique states – a Normal State, Drift State, and a Depeg state. Under the Normal State, the price of the stablecoin is within 10 basis points (bps) of the peg, or $0.999. The price for the Drift State is between 0.999 and $0.985, and a depeg happens at below $0.985.
As expected, the protocol functions normally in the Normal State. However, in a Drift State, the protocol will add the amount of depeg in bps to the cost of the transfers. It will also “block all outbound messages from swaps where the depegged asset is attempting to make a cross-asset swap” in a Depeg State.
Fees charged in the drift state will go directly to Stargate’s protocol-owned liquidity, thereby preventing cross-chain arbitrage from impacting the protocol.
When the protocol is in the Drift State or Depeg State, transfers to a depegged asset will function normally at a 1:1 ratio to enable users that want to bridge the other way to do so [...] Stargate also removes the ability for toxic arbitrage to imbalance the protocol making the liquidity within the protocol more usable.
Meanwhile, over 98% of the voters were in support of the proposal, with just 0.66% opposing the motion.
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