How the System Balances

1. Liquidity Provision:

• Earn depositors supply stablecoins, incentivized by high yields

• These stablecoins are used to purchase ERC20 tokens, creating liquidity for borrowers

1. Price Discovery:

• ERC20 sellers can sell tokens slightly above market rate

• The arbitrage opportunity attracts sellers, ensuring a steady supply of tokens

• Competition among sellers naturally stabilizes prices close to market rates

1. Borrowing Demand:

• Attractive loan terms drive demand from borrowers

• Borrowers' repayments in stablecoins flow back to Earn depositors

1. Yield Generation:

• Borrower repayments and fees generate yield for Earn depositors

• High yields attract more stablecoin deposits, completing the cycle