Understanding $ERN

Optimal usage of Ethos Reserve is directly correlated to optimal understanding of the ERN token, why it matters, and how different market conditions can impact its use cases.

The ERN Peg While ERN mechanics establish a soft peg to the US dollar, its true value lies in a range between $0.995 and $1.085. The reason for this is due to the minting and redemption features available to ERN holders.

When ERN is below $1… Each ERN token can be redeemed for $1 worth of collateral from the Ethos Reserve smart contracts. This operation is called a Redemption, and incurs a 0.5% fee which is sent to the Staking Pool.

Redemptions are handled almost entirely by bots within seconds of ERN dipping below peg. For this reason, they are only done directly from the smart contract level.

Redemptions are different from withdrawals or repayments, as they can be performed by users whether they have an open position or not. This makes arbitrage when ERN is below $1 very profitable.

When ERN is above $1… When ERN rises above $1, minting it gets progressively cheaper. This is because Ethos values each ERN token as $1 at time of issuance. This means when ERN is valued at $1.05 on an external DEX, every $100 of ERN minted nets an extra $5.

The stability pool is able to close unhealthy debt positions within Ethos Reserve for a profit to ensure it remains fully collateralized. Arbitrage efficiency and liquidation bonus mean that ERN price may range slightly, but it should never deviate excessively from $1 without effectively being able to restore itself.