⚖️Price Stability

Price Stability Mechanism

xBNB maintains its 1:1 peg to BNB through market-driven arbitrage opportunities combined with dynamic collateral ratio adjustments.

How Price Stability Works

The protocol doesn't rely on direct interventions or oracles to maintain the peg. Instead, it creates natural economic incentives for arbitrageurs to keep xBNB at 1:1 of BNBs value.

Under Peg Scenario

When 1 xBNB < 1 BNB (e.g., 1 xBNB = 0.98 BNB)

Arbitrage Opportunity

Buy 1 xBNB at 0.98 BNB → Redeem for 1 BNB value → Profit 0.02 BNB

Market Response

1

Arbitrageurs Buy xBNB

When xBNB trades below peg, arbitrageurs buy cheap xBNB from the market.

2

Buying Pressure Increases

This buying activity pushes xBNB price upward toward 1 BNB.

3

Redeem for Full Value

Arbitrageurs redeem xBNB for its full value (1 BNB worth of collateral).

4

Profit Realised

The difference between purchase price and redemption value is the arbitrageur's profit.

Protocol Response

When xBNB is consistently under peg:

• Collateral Ratio increases hourly by 0.1%

• Higher CR makes redemptions return more BNB

• More attractive redemption terms strengthen the peg recovery

Over Peg Scenario

When 1 xBNB > 1 BNB (e.g., 1 xBNB = 1.02 BNB)

Arbitrage Opportunity

Mint 1 xBNB for 1 BNB value → Sell at 1.02 BNB → Profit 0.02 BNB

Market Response

1

Arbitrageurs Mint xBNB

When xBNB trades above peg, arbitrageurs mint 1 new xBNB at 1 BNB cost.

2

Sell at Premium

They immediately sell the minted xBNB on the market at above-peg prices.

3

Selling Pressure Increases

This selling activity pushes xBNB price downward toward 1 BNB.

4

Profit Realised

The difference between minting cost and selling price is the arbitrageur's profit.

Protocol Response

When xBNB is consistently over peg:

• Collateral Ratio decreases hourly by 0.1%

• Lower CR makes minting cheaper (less BNB required)

• Easier minting increases xBNB supply, bringing price down

Key Advantages

Decentralised

No reliance on centralised price feeds or governance decisions. Market forces naturally maintain the peg.

Capital Efficient

Arbitrageurs don't need large capital reserves. Small price deviations create profitable opportunities.

Self-Correcting

The combination of arbitrage + dynamic CR creates a robust, self-correcting system.

Permissionless

Anyone can participate in arbitrage, ensuring the mechanism works 24/7.

Peg Tolerance

Minor price deviations are normal and healthy:

Typical Range for 1 xBNB: 0.99 - 1.01 BNB

Small deviations allow for:

• Natural market making spreads

• Transaction costs for arbitrageurs

• Short-term supply/demand imbalances

Significant Deviation for 1 xBNB: < 0.95 or > 1.05 BNB

Larger deviations trigger stronger arbitrage incentives and faster CR adjustments.

Real-World Example

Scenario: 1 xBNB Trading at 0.97 BNB

Arbitrageur's Action:

1. Buy 100 xBNB for 97 BNB on DEX

2. Redeem 100 xBNB for 100 BNB value in collateral

3. Profit: ~3 BNB (minus gas fees and 0.50% redemption fee)

Market Impact:

• Buying 100 xBNB increases demand

• Price moves from 0.97 toward 1.00

• Other arbitrageurs see opportunity and also buy

• Peg is restored through collective action

Fee Considerations

Remember that protocol fees apply:

• Minting Fee: 0.50%

• Redeeming Fee: 0.50%

These fees create a small buffer zone (approximately 0.99 - 1.01) where arbitrage may not be immediately profitable, which is healthy for reducing unnecessary trading volume.

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