How does USDM work?

USDM operates as an ERC20 rebasing token designed to maintain a 1:1 peg with USD. Users can purchase USDM, which is fully backed by a diversified set of short-duration U.S. Treasuries, money market funds, ETFs, and reverse repurchase agreements. The rebasing mechanism adjusts the token supply daily based on a rewardMultiplier, reflecting the yield generated from the underlying collateral. This allows users to passively accumulate yields as their USDM balance increases automatically over time.

How does USDM maintain peg to USD?

USDM maintains its 1:1 peg to USD through robust collateralization and liquidity mechanisms. The token is fully backed by short-term U.S. Treasuries and other low-risk USD-denominated assets with an average maturity of 60 days or less. Additionally, USDM leverages liquidity pools on platforms like Curve, pairing USDM with other popular stablecoins like USDC to ensure seamless redemption at the pegged value. Arbitrage opportunities in secondary markets further stabilize the price by incentivizing traders to correct any deviations from the $1 peg, thereby reinforcing USDM’s stability.

What are the risks of USDM?

While USDM is designed to be a secure and stable asset, it is not without risks. Key risks include smart contract vulnerabilities within the underlying DeFi protocols or the USDM contract itself, which could potentially lead to loss of funds if exploited. Market risks, such as unexpected changes in interest rates, can impact the overall yield and stability of USDM. Operational risks arise from the complexity of managing the rebasing mechanism and maintaining over-collateralization, which requires meticulous management to prevent liquidity issues. Additionally, regulatory risks associated with DeFi protocols and stablecoins could affect the long-term viability and operation of USDM.