Peg Arbitrage

1:1 Backing with Blue-Chip Crypto Stablecoins

lvlUSD Backing

lvlUSD is minted exclusively with USDT or USDC, maintaining a strict 1:1 backing. Every lvlUSD in circulation is fully collateralized by an equivalent USDT or USDC in Level's reserves. These reserves are deployed in lending protocols like Aave to generate yield. The receipt tokens from these protocols (e.g. aUSDT or aUSDC from Aave) are then wrapped to become yield-accruing assets. A portion of these wrapped tokens (waUSDT or waUSDC) is subsequently restaked in Symbiotic.

lvlUSD Peg Arbitrage

Users can capitalize on price dislocations of lvlUSD in secondary markets through a straightforward arbitrage strategy:

• If lvlUSD trades above its $1 target peg, users can mint lvlUSD at face value and sell it in the secondary market for a profit.

• If lvlUSD trades below $1, users can buy it at a discount in the secondary market and redeem it for USDT or USDC.

Whitelisted users can profit from discrepancies between lvlUSD’s protocol mint/redeem price and its secondary market price. This currently applies to the lvlUSD/USDC AMM pool on Curve.

Scenario 1: lvlUSD trades below $1 on Curve

If lvlUSD is priced at $0.995 on Curve, an arbitrageur could:

1. Buy 1 lvlUSD for $0.995 USDC on Curve.

2. Redeem 1 lvlUSD for $1.00 USDC via the protocol.

3. Profit $0.005 per lvlUSD.

Scenario 2: lvlUSD trades above $1 on Curve

If lvlUSD is priced at $1.005 on Curve, an arbitrageur could:

1. Mint lvlUSD with USDC via the protocol at $1.00.

2. Sell lvlUSD in the Curve pool for $1.005 USDC.

3. Profit $0.005 per lvlUSD.

This mechanism ensures that lvlUSD’s price remains anchored to its $1 peg while providing an opportunity for traders to capture gains.