F.A.Q.
What happens if a stablecoin lose their peg?
Stablecoins maintains financial reserves to stabilize its assets, as demonstrated in past depegging events. When a stablecoin loses its peg, a downward bank run often occurs, where holders sell at a discount. This allows issuers to repurchase supply at a lower cost, aiding in peg restoration.
To mitigate operational, regulatory, and liquidity risks, a portion of protocol fees is allocated to a reserve fund, designed to provide an extra layer of security for holders in extreme scenarios.
How does the reserve fund work?
A portion of protocol fees is used to acquire Bitcoin and Ethereum, which are then paired with the Overlaid asset in liquidity pools. This allows users to seamlessly swap the Overlaid asset for top crypto assets without requiring intervention from the team.
These liquidity pools also generate swap fees, further expanding the reserve fund. By holding strategic assets, the fund acts as a hedge against dollar devaluation.
Why would someone hold the Overlaid asset without staking it?
The Overlaid asset is designed for multiple use cases. Initially, it will serve as a liquidity base for blue-chip assets in the reserve fund and support liquidity for the governance token, with protocol incentives in place. Over time, the percentage of unstaked Overlaid assets will grow to meet ecosystem demands, with additional use cases introduced progressively.
Can the Overlayer blacklist a wallet?
The Overlayer is committed to decentralization, and at launch, wallet censorship is not possible.
Why should I stake the Overlaid asset instead of lending stables?
The Overlaid asset staking follows a model similar to Rocket Pool, where yield is generated by the entire overlaid asset supply but distributed only to stakers. As long as the staked supply remains below 80% of the total supply, stakers will earn a higher yield than they would from lending stables directly.
What happens if a stablecoin blacklists the Overlayer’s protocol wallet?
While unlikely and against the issuers’ interests, the Overlayer has a contingency plan. In such an event, the overlaid asset minting and redeeming would be executed using a"USDT" (Aave’s interest-bearing versions) instead of the original stablecoins.
Where does the Overlaid asset’s APY come from?
The Overlaid asset’s Annual Percentage Yield (APY) is derived from the interest generated by its collateral, which is deposited into Aave’s lending markets.
Can the Overlaid asset’s collateral be liquidated?
No, the Overlayer only engages in lending, not borrowing. Since no debt positions are taken, collateral liquidation is impossible.
What happens if Aave is hacked?
If Aave were compromised, the Overlaid asset’s collateral could be at risk, potentially affecting its value and peg stability. However, this risk is mitigated through regular security audits and Aave’s Safety Module, which is designed to absorb losses. A hack of this magnitude would impact the entire DeFi sector.
What happens if the Overlayer is hacked?
The Overlayer’s smart contracts undergo multiple security audits before deployment and are stress-tested in audit contests. This ensures that the protocol has been thoroughly reviewed by top blockchain security firms, minimizing the risk of vulnerabilities.