Oscillating Peg

Membrane uses logic similar to a PID, pioneered by Reflexer Labs, which we call the Credit Price Controller to regulate the redemption price (peg) of CDT. The redemption price is altered by an "interest rate" or redemption rate that moves inverse to market conditions. Ex 1: At a redemption price of 1.00, if CDT's market price is .95, then its redemption rate will be 5%. In other words, in a year at similar market conditions, the redemption price would be 1.05. Ex 2: On the flipside, if the market price is 1.05 at the same redemption price of 1.00, then the rate is negative 5% or a redemption price of .95 in a year.

The redemption price doesn't directly affect market price, but it influences the health of all vaults.

This system adopts a wider volatility range for long-term system optimality, decreasing the reliance on centralized collateral (i.e. existential risk). Some have even called negative redemption rates, "paying for decentralization". Without low volatility collateral, typically USDC, the peg trends above 1.00. Redemption rates & low volatility assets are tools to help the system repeg in an attempt to remove reliance on either.

Additional resources for understanding of the first oscillating peg system RAI:

https://medium.com/reflexer-labs/stability-without-pegs-8c6a1cbc7fbd https://twitter.com/ameensol/status/1420048205127946246?s=20&t=VVBsx8gveHSZr6hWhzIrNA