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PSM Module

  • Module Name: Peg Stability Module
  • Type/Category: Stability → KssLitePsm.sol
  • Contract Sources:

1. Introduction​

The Peg Stability Module (PSM) enables direct 1:1 swaps between KUSD and a stablecoin collateral (USDC). This mechanism helps maintain KUSD's peg to $1 USD by providing:

  • Arbitrage Opportunities — Traders profit from peg deviations
  • Liquidity — Users can swap directly without slippage
  • Price Floor/Ceiling — Bounds KUSD price within fee ranges

2. How PSM Works​

┌─────────────────────────────────────────────────────────────┐
│                    PSM Swap Mechanism                        │
├─────────────────────────────────────────────────────────────┤
│                                                              │
│   KUSD > $1.001                   KUSD < $0.999             │
│   ┌─────────┐                     ┌─────────┐               │
│   │  USDC   │ ──sellGem──▶ KUSD   │  KUSD   │ ──buyGem──▶   │
│   └─────────┘                     └─────────┘    USDC       │
│   Users buy cheap KUSD            Users sell expensive KUSD │
│   → Price drops                   → Price rises             │
│                                                              │
└─────────────────────────────────────────────────────────────┘

3. Key Functions​

sellGem (Swap Stablecoin → KUSD)​

function sellGem(address usr, uint256 gemAmt) external {
    uint256 gemAmt18 = gemAmt * to18ConversionFactor;
    uint256 fee = gemAmt18 * tin / WAD;
    uint256 kusdAmt = gemAmt18 - fee;
    
    gem.transferFrom(msg.sender, address(this), gemAmt);
    gemJoin.join(address(this), gemAmt);
    vat.move(address(this), usr, kusdAmt * RAY);
}
ParameterDescription
usrAddress to receive KUSD
gemAmtAmount of stablecoin to sell

buyGem (Swap KUSD → Stablecoin)​

function buyGem(address usr, uint256 gemAmt) external {
    uint256 gemAmt18 = gemAmt * to18ConversionFactor;
    uint256 fee = gemAmt18 * tout / WAD;
    uint256 kusdAmt = gemAmt18 + fee;
    
    vat.move(msg.sender, address(this), kusdAmt * RAY);
    gemJoin.exit(usr, gemAmt);
}

4. Fee Structure​

ParameterDescriptionTypical Value
tinFee on sellGem (stablecoin → KUSD)0.1% (0.001)
toutFee on buyGem (KUSD → stablecoin)0.1% (0.001)

Fee Impact on Peg​

KUSD PriceActionEffect
> $1.001sellGem profitableIncreases KUSD supply → Price drops
< $0.999buyGem profitableDecreases KUSD supply → Price rises
$0.999 - $1.001No arbitragePeg maintained

5. USDC Adapter​

The PSM uses a specialized adapter for USDC (6 decimals):

// The KssLitePsm handles decimal conversion internally
contract KssLitePsm {
    uint256 public immutable to18ConversionFactor;
    
    constructor(...) {
        // For USDC with 6 decimals: 10^(18-6) = 10^12
        to18ConversionFactor = 10 ** (18 - gem.decimals());
    }
}

6. Deployment Configuration​

// Initialize PSM
psm.file("tin", 0.001 * WAD);   // 0.1% sell fee
psm.file("tout", 0.001 * WAD);  // 0.1% buy fee

// Set debt ceiling in Vat
vat.file(ilk, "line", 10_000_000 * RAD);  // 10M KUSD ceiling

7. Gotchas​

Decimal Handling

USDC uses 6 decimals while KUSD uses 18. The PSM handles this conversion, but external integrations must account for this.

  • Debt Ceiling — PSM is limited by the collateral type's debt ceiling
  • Fee Changes — Only governance can modify tin/tout
  • Emergency Shutdown — PSM may be disabled during shutdown