Risk Management & Overcollateralization

To maintain pUSD’s stability, Polariz enforces an overcollateralization ratio, typically ranging from 150%-200%. This ensures that if XLM experiences sudden price drops, each minted pUSD remains fully backed. The protocol may implement a small borrow fee, which goes into a safety reserve for added stability. Over time, governance can adjust these ratios to align with market conditions, helping preserve pUSD’s peg and minimizing systemic risk.

Bridge Mechanism & Cross-Chain Security

1. Lock & Signal: When a user locks XLM on Stellar, the Logic Contract emits an event. An off-chain or bridging module confirms the collateral, verifying the user’s position is safely overcollateralized.

2. Mint on Target Chain: Once confirmed, pUSD is minted to the user’s address. A similar process applies in reverse when pUSD is burned, unlocking XLM on Stellar.

3. Risk Minimization:

   • Time-Bound Transactions: Mint requests expire if not validated within a certain window.

   • Optional Multi-Sig Governance: Critical bridge updates or parameter changes require multiple signatories.

   • Buffer Periods: Overcollateralization provides a cushion, so minor delays in bridging won’t immediately endanger positions.

Stability Parameters

Polariz relies on a straightforward model for pUSD stability:

• Overcollateralization: Each minted pUSD is backed by a surplus of XLM.

• Fees: A small mint fee accumulates in a reserve, defending against short-term shocks.

• Adaptive Governance: The community (or a multi-sig) can update LTV ratios, fees, and stability margins to adapt to market conditions.

If pUSD trades off-peg due to external market pressures, arbitrage incentives naturally push it back in line, since holders can always redeem pUSD for $XLM at or above the collateral ratio.