INTRODUCTION
RESOURCES
SMART CONTRACTS
Economic Risks
Sell-offs:
Sell-offs occur when large amounts of gDAI tokens are sold and result in the lowering of gDAI’s market price. Large sums of gDAI being sold in the market won’t necessarily decrease the price of gDAI. The effects of a sell-off depend on various factors, including the speed of the sell-off as well as the trading volume at the time. Below are some mitigating factors to a sell-off scenario.
- When the price of gDAI falls below $0.99 or rises above $1.01, users can engage in risk-free arbitrage through the Swap. Read more about Swap here.
Hyper-Borrowing:
Hyper-borrowing occurs when large amounts of gDAI tokens are borrowed, flooding the market with excess supply, and reducing the market price for gDAI. Large amounts of gDAI being borrowed won’t necessarily decrease the price of gDAI. The gDAI tokens would need to be listed on the market to increase the supply of available gDAI. If this occurs, the price of gDAI could experience downward pressure. Below are some mitigating factors to this possibility.
- In order to prevent a hyper-borrowing event, the GhoulDao Protocol will set debt ceilings, which will continually increase with the size of the network. Users will be encouraged to keep total gDAI borrowed near the ceiling to prevent large sums of gDAI from being borrowed at once.
- If large amounts of gDAI enter the market and lower the price, the community can use Swap to arbitrage the price closer to the peg.
Last modified 2mo ago
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