⚖️Value-Backed Reserves
The value-backed reserves principle dictates that each VBUSD should be fully collateral-backed:
Each VBUSD is intended to be backed by at least 1 USD worth of real assets at all times
The target composition is $.50 worth of wstETH and $.50 worth of 1x ETH short on GMX
Reinitialization restores the 1:1 value ratio between spot holdings and leveraged short position
Full collateralization is ensured by several stabilization mechanisms
Because VUSD's backing initially consists of half spot ETH-equivalent holdings and half 1x ETH short, the collateral value should remain at 1 USD/VBUSD, as this constitutes a delta-neutral position. The total value of the spot and short holdings should remain approximately the same even with ETH price change, as long as Reinitialization is conducted.
The likelihood of collateral shortfall is reduced by the fact that both the spot wstETH holdings and the 1x ETH short are expected to earn yield. The former earns income from Ethereum liquid staking, and the latter is expected to earn GMX funding fees.
All users should be able to redeem without a collateral shortfall because of this design. The stabilization mechanisms are designed to sacrifice things like the Sinking Fund, Safety Pool deposits, and even the GoVBUSD token price to ensure adequate reserves before allowing the VBUSD collateral to become fractional.
Short Position Controller
Although we usually refer to GMX as the location of our short position, there is only a certain amount of short opening liquidity available on GMX, and so we may not always have the ability to open a short position of the size we want on GMX. In a situation where we need to expand beyond the limits of GMX, we can also open ETH/USD short positions elsewhere.
In light of this need, the Short Position Controller handles the possibility of holding multiple forms of ETH/USD short collateral. The treasury can manage multiple simultaneous short positions on DEXs. Furthermore, a virtual position represents short collateral held on a CEX. The Position Controller can prioritize adding or closing short positions on different DEXs, and collateral can be easily moved from CEX to DEXs.
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