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Price Stability of QSD
QSD can be minted and redeemed in real-time from the system for $1 of value. This allows arbitragers to balance the demand and supply of QSD in open markets like Uniswap.
If the market price of QSD is above the price target of $1, then there is an arbitrage opportunity to mint QSD tokens by placing $1 of value into the system per QSD and sell the minted QSD for over $1 in the open market. At all times in order to mint new QSD, a user must place $1 worth of value into the system. The difference is simply what proportion of collateral and KUN makes up that $1 of value. When QSD is in the 100% collateral phase, 100% of the value that is put into the system to mint QSD is collateral. As the protocol moves into the fractional phase, part of the value that enters into the system during minting becomes KUN (which is then burned from circulation). For example, in a 95% collateral ratio, every QSD minted requires $0.95 of collateral and burning $0.05 of KUN. In a 60% collateral ratio, every QSD minted requires $0.6 of collateral and burning $0.4 of KUN, and so on.
If the market price of QSD is below the price range of $1, then there is an arbitrage opportunity to redeem QSD tokens by purchasing cheaply on the open market and redeeming QSD for $1 of value from the system. At all times, a user is able to redeem QSD for $1 worth of value from the system. The difference is simply what proportion of the collateral and KUN is returned to the redeemer. When QSD is in the 100% collateral phase, 100% of the value returned from redeeming QSD is collateral. As the protocol moves into the fractional phase, part of the value that leaves the system during redemption becomes KBT (which is minted to give to the redeeming user). For example, in a 90% collateral ratio, every QSD can be redeemed for $0.90 of collateral and $0.10 of minted KBT. KBT can be converted into KUN tokens when certain conditions are met.