Burn
Only smartcoin minters may burn smartcoins for their underlying collateral. Doing so costs a fee in $UMJA, which will be burnt from the token's fixed supply.
Overview
Umoja's smartcoin burning process leverages a RFQ (Request for Quote) mechanism to ensure system functionality at scale while maintaining efficiency and predictability in the underlying trading model.
The smartcoin burning process is as follows:
Select Smartcoin to Burn: Users choose the smartcoin they wish to burn via the interface.
RFQ Mechanism: An RFQ process is initiated to determine the optimal principal and accrued yield to return to the user in the initial collateral token.
Deposit Smartcoin: Users deposit the required smartcoins.
Receive Principal and Yield: Users receive the proportional amount of principal and accrued yield in their connected wallet.
UMJA Burn Fee: User must burn $UMJA tokens to burn smartcoins based on the USD amount of smartcoins burned.
RFQ Mechanism Details
The RFQ mechanism ensures that minting and burning transactions are executed at the most favorable rates, enhancing the system's scalability and efficiency.
Process:
Quote Request: User requests a quote to mint a certain amount of yBTC, via the UI, or directly against our Pricing API
Quote Return: Pricing API returns a quote which has a time-limited validity
Quote Acceptance/Rejection: User accepts or rejects the quote
User Quote Confirmation: If the user accepts the quote, they are asked to send a certain amount of wrapped BTC to our smart contract address
Smartcoin Minting: Upon receipt of the collateral, the smart contract confirms the amount of smartcoins to be minted against the quote provided by the Pricing API
By integrating the RFQ mechanism with the minting and burning process, Umoja ensures the system remains scalable, efficient, and user-friendly, encouraging broader adoption and network effects.
$UMJA Burn Fees
To disincentivize smartcoin burning and minimize the operational costs of unwinding trades, users will have to pay an UMJA burn fee using the burn fee rate, bF. Initially,
To maintain the integrity of the arbitrage system, the spread between the minting and burning rates must remain narrow enough for arbitrage to function, but also reflect the halving emission model. Thus, we must introduce the following mint-burn spread constraints:
0.5 ≧ (bF-mR) ≧ 0.1
mR must halve with each emissions schedule
bF can be adjusted dynamically based on monthly governance votes to ensure that smartcoin burns don’t become too high or low and negatively affect liquidity.
bF must be locked in place for a minimum of 30 days
Parameters bF and mR will be voted on and updated on a quarterly basis based on the economic performance of the protocol and broader market.
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