Buybacks & Recollateralization
During the operation of Chemix, there may be a mismatch between the value of the collateral and the collateral ratio: when the total value of the collateral is less than the current collateral ratio of the system, the collateral needs to be increased; when the value of the collateral exceeds the ratio of the collateral ratio, the excess collateral value can be allocated to CEC holders. To quickly redistribute value back to CEC holders or increase system collateral, two functions are built into the protocol: buyback and recollateralization.

Recollateralization

When the actual collateral ratio of the system is lower than the nominal collateral ratio, the system requires users to replenish the collateral. This process is called recollateralization. Anyone can call the recollateralization function which then checks if the total collateral value in USD across the system is below the current collateral ratio. If it is, the system allows the caller to add up to the amount needed to reach the target collateral ratio in exchange for newly minted CBT at a bonus rate. The bonus rate is set to 0.5% to quickly incentivize arbitragers to close the gap and recollateralize the protocol to the target ratio. The incentive amount can be adjusted through community governance in the subsequent operation of the agreement.
CBTreceived=(YiPi)(1+Br)PECBT_{received} = \frac{(Y_i*P_i)(1+B_r)}{P_E}
Where:
YiY_i
is the amount of collateral
ii
required to reach the collateral rate;
PiP_i
is the price for collateral
ii
provided by the Chainlink Oracle;
BrB_r
is the percentage of the reward CEC minted during recollateralization;
PEP_E
is the market price of the CEC token, provided by the weighted average prices of DEX pool.
Example D
Assuming that the system is in a state of insufficient collateral at this time, it needs $500,000 of collateral to reach the target mortgage rate. The user can call the recollateralization function and provide $500,000 worth of collateral to the protocol. At this time, the user can receive CBT tokens equivalent to 500,000×1.05, and the reward amount is 5%.
Placing 500,000 BUSD($1.00/BUSD), the CEC price is $6.00/CEC, the calculation process is as follows:
CBTreceived=(500,000×1.00)(1+0.05)6.00=87,500CBT_{received} = \frac{(500,000×1.00)(1+0.05)}{6.00} = 87,500

Buybacks

The opposite scenario occurs when there is excess collateral in the system than required to hold the target collateral ratio. This can happen in several ways:
  • The protocol has been lowering the collateral ratio successfully keeping the price of QSD stable;
  • Interest bearing collateral is accepted into the protocol and its value accrues;
  • Minting and redemption fees are creating revenue;
In such a scenario, any CEC holder can call the buyback function to exchange the amount of excess collateral value in the system for CEC which is then burned by the protocol.
To effectively redistributes excess value back to the CEC distribution and holders, we expect the users to actively participate in buybacks to gain value since there is 1% bonus rate for the buyback function, with the consumption in buyback, CEC also has expectations of value growth. After the buybacks occurs, since some CEC will be burned, it can also bring added value to all CEC holders.
Collaterali, received=E×PEPiCollateral_{i,\ received} = \frac{E×P_E}{P_i}
Where:
EE
is units of CEC to be burned in buyback;
PEP_E
is the market price of the CEC token, provided by the weighted average prices of DEX pool;
PiP_i
is the price in USD of collateral
ii
, provided by Chainlink Oracle.
Chemix supports a variety of collateral, so when buyback happens, the system will allow users to choose the collateral by themselves. Suppose the amount of certain collateral is completely repurchased and the collateral ratio still cannot return to the target value. In that case, the user can continue to choose other collateral to repurchase until the target collateral ratio is achieved.
Example E
There is 60,000,000 QSD in circulation at a 60% collateral ratio. The total value of collateral across the BUSD, BNB, BTCB pools is 40,000,000 USD. There is 40,000,000 USD worth of excess collateral available for CEC buybacks. In the three kinds of collateral, the total value of the lowest is BTCB(3,700,000 USD). Assuming that a user chooses to exchange BTCB with CEC, then after exchanging all BTCB, the user can still exchange BUSD or BNB with CEC equal to 300,000 USD.
If the user chooses to exchange a BNB equivalent to 4,000,000 USD at the beginning, and the price of BNB is $42.5/BNB and CEC is $10/CEC, then:
CECburned=4,000,00010=400,000 CECCEC_{burned} = \frac{4,000,000}{10} = 400,000\ CEC
BNBreceived=400,000×1042.5=94,117.64705882 BNBBNB_{received} = \frac{400,000×10}{42.5} = 94,117.64705882\ BNB