The GCSR
6 recipes.
The Graduated Collateralized Stability Regime is the part of the design that most directly answers the question Terra failed: what does an algorithmic stablecoin's loss-absorption look like in the worst case, and is it bounded?
The answer is five rungs and one cap. Each rung has a published trigger condition and a published response. The cap closes the dilution loop. The cap and the floor are immutable in code. Together they make the worst case a number — 43.75% deficit on outstanding szUSD, under the joint failure scenario in §4.4 — and not the unbounded spiral that took UST to zero.
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Over-collateralization, algorithmic adjustment, emergency facilities, dilutive backstop, resolution waterfall. Conditions and responses enforced in code.
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No more than 15% of total backing collateral may be SZK. Enforced in code at the issuance layer. Cannot be raised by governance.
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130% minimum collateral ratio in code. Steady-state target is 150%. The 20-point gap is the buffer Layer 2 operates in.
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Worst-case bound under stated assumptions: SZK to zero, 50% drawdown across exogenous collateral, dilution to the cap. 56.25% recovery on szUSD.
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Cap and ratio constraints in early phases, relaxing as observable stability criteria are met. Not gated on governance discretion.
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The reference parameter table for the GCSR. The numbers in code, the bounds governance cannot cross, and the criteria each phase transition is gated on.
If you remember nothing else from this chapter, remember the cap (§ 4.2). It is the difference between a ladder and a ramp. The waterfall in Chapter 5 is what catches the system if even Layer 4 dilution is not enough.