# 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

2. 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

3. Borrowing Demand:

* Attractive loan terms drive demand from borrowers
* Borrowers' repayments in stablecoins flow back to Earn depositors

4. Yield Generation:

* Borrower repayments and fees generate yield for Earn depositors
* High yields attract more stablecoin deposits, completing the cycle