🎩Potion Peg

pTokens are soft pegged to the oracle price, which means that the Poison protocol does not directly rely on price oracles to determine the trading prices of pTokens. Instead, Poison relies on a combination of the minting liquidation process, arbitrageurs, and governance changes to keep pToken prices close to oracle prices.

Minting Liquidation

As the price of an asset XXX rises on the MARKET, minted pXXX may fall below the minimum collateral ratio (MCR) and trigger a liquidation event. When that happens, the Poison protocol will automatically sell collateral to buy pXXX until the collateral ratio reaches the MCR again. This buying pressure created for pXXX will drive prices higher and will help the price of pXXX converge with the price on the MARKET.

Arbitrageurs

If the price of XXX on the MARKET were $1000, but the price of pXXX on Poison were $900, an arbitrageur would buy the asset with the assumption that in the near future, with enough buying pressure, the pXXX price would eventually converge to the MARKET price of $1000. At that point, the arbitrageur would then sell pXXX at $1000, taking a profit of $100 per share. Similarly, if the price of XXX on the MARKET were $1000, but the price of pXXX on Poison were $1100, an arbitrageur would provide collateral, mint the pXXX asset, and sell it at $1100 with the assumption that in the near future, with enough selling pressure, the pXXX price would eventually converge to the MARKET price of $1000. At that point, the arbitrageur would then repurchase pXXX at $1000 and then burn it to regain their collateral, taking a profit of $100 per share. You can also find arbitrage bots in our Discord to keep tabs on price differences.

Governance And Magic ....