❄️How CAIWorks

CAI is a new BEP20 token which can only be minted when a user burns CADT. CAI can be exchanged for newly minted CADT (redeemed) using the CADT price oracle, implemented with Time Weighted Average Price (TWAP). Oracles are a fundamental component to any stablecoin’s base functionality. An oracle, in relation to blockchain technology, is a system built to feed data to smart contracts.

Generally, a Stablecoin is only valued and trusted if it maintains it’s price peg. CAI is pegged to $1. How is it ‘backed’? There are two layers of CAI’s backing:

1. Smart-contract algorithms and the CADT/stable LP

2. CoachAI Finance Treasury

Layer 1: Smart-contract algorithms and CADT/stable LP

The underlying protocol uses the basic market forces of supply and demand to maintain the price of CAI. Everybody understands that when the demand for CAI is high and the supply is limited, the price of CAI would increase. When the demand for CAI is low and the supply is too large, the price of CAI would in principle decrease. The protocol ensures that the supply and demand of CAI is always balanced, leading to a stable price.

How does this work? Expansion and contraction! To maintain the price of CAI, the CADT supply curve pool adds to or subtracts from CAI’s supply. Users burn CADT to mint CAI and burn CAI to mint CADT, all incentivized by the protocol’s algorithmic market module. Let’s visualize the minting and redeeming process:

CoachAI (CADT) is the counterpart to the CAI Stablecoin. By modulating supply, CoachAI ’s price increases as the demand for CAI increases. Let’s zoom in on the elements of Expansion and Contraction:

Expansion: The percentage of CAI in the curve pool decreases, so it means that the demand for CAI is high. The price of CAI against BUSD/DAI also increases slightly, so minting CAI can be slightly profitable. Users will take advantage of this profit margin by minting CAI and rebalancing the percentage of CAI in the curve pool.

Contraction: The percentage of CAI in the curve pool increases meaning that the demand for CAI is low. The price of CAI against BUSD/DAI also decreases slightly, so redeeming CAI can be slightly profitable. Users will take this profit by redeeming CAI and rebalancing the percentage of CAI in the curve pool

Expansion and contraction can be considered the prime mechanism for maintaining peg (layer 1). CAI maintains stability through a simple swap mechanism: 1 CAI can be exchanged for 1 dollar’s worth of CADT at any time. If CAI becomes less valuable than $1.00, buyers can buy it up and use the mechanism to redeem it for $1.00, enabling them to make a profit. As buyers do this, demand for CAI causes the price to go up again until it reaches $1 USD. These economic incentives act rapidly to maintain CAI’s stability.

CADT/stable LP As CADT/BUSD are mostly owned by the protocol, sufficient liquidity is guaranteed when a CAI redeem action takes place. All protocol controlled CADT/stable LP is there to make sure the redeeming process will be successful.

Layer 2: CoachAI Finance Treasury.

Although there is the curve pool as “Layer 0” for swapping CAI back and forth, we still need to mint/redeem from time to time in a much lower frequency. The mint/redeem at Layer 1 will cause the price of CADT to (slightly) increase or decrease. Although the price of CADT has little impact on mint/redeem for CAI in Layer 1, in case the CADT price decreases more than expected/wanted, the CoachAI Finance treasury will be used to stabilize the value of CADT by buy backs and burns.

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