kCoins

Kopi introduces kCoins, a suite of protocol-managed cryptocurrencies, with kUSD being a prime example. Each kCoin is pegged to one or more reference tokens for pricing. The protocol assesses the price of each kCoin against its reference tokens at the conclusion of every block, adjusting the supply to maintain price parity. For instance, kUSD's value is regularly compared to USDC.

Minting & Burning

When a kCoin's market price exceeds that of its reference tokens, it indicates a shortage in supply. The protocol responds by minting additional kUSD, which is then exchanged for XKP, subsequently removing (burning) the XKP from circulation. This action aims to decrease the kUSD price, aligning it more closely with USDC’s reference value. Conversely, when a kCoin's value falls below its reference, it suggests an oversupply, and the protocol undertakes to diminish its quantity by burning. This is achieved by minting XKP, purchasing the excess kCoin, and increasing its price through reduced availability.

Slow Supply Adjustment

The protocol opts for gradual market interventions rather than immediate extensive adjustments to ensure price parity with reference tokens. This strategy serves two purposes; firstly, it accommodates fluctuations in the reference token's price, reflecting significant shifts rather than momentary variations; secondly it fosters arbitrage opportunities for traders, indirectly assisting the protocol in price stabilisation.

Backing of XKP

The sustainability of kCoins and the protocol is underpinned by diverse revenue streams, notably from the money market and cAssets. A portion of the fees collected during cAsset redemption increases the DEX's liquidity pool. Similarly, trading fees contribute to this liquidity, creating a cyclical system where increased trading activity benefits the protocol. Revenue derived in kCoins is partly eliminated from circulation, aiding supply adjustment. However, should the need arise due to a miscalculation in a supply reduction, the protocol can reissue the previously burned kCoins, thus ensuring no adverse impact on the ecosystem. Additionally, the dedicated arbitrage mechanism buys and sells kCoins depending on their relation to their respective reference currencies.

Kopi's economic model uses the DEX and Money Market transactions to reinforce the protocol's liquidity. Fees collected in kCoins are strategically burned to induce a mild deflationary effect, counterbalanced by the protocol's capacity to re-mint kCoins as necessary. Thus, the protocol's capacity to re-mint kCoins when necessary underpins XKP's valuation and overall stability.