Chapter 4 · § 4.1 · Recipe
The Five-Layer Ladder
Each rung has a published trigger. No rung is the last rung until Layer 5.
Problem
How does the protocol defend the dollar peg of szUSD? Specifically, by what published, code-enforced, governance-immune sequence of measures?
Solution
Five rungs. Each one with a published trigger and a published response.
| Layer | Mechanism |
|---|---|
| 1. Over-collateralization | Every unit of szUSD backed by ≥150% exogenous collateral at issuance. Steady-state buffer. |
| 2. Algorithmic adjustment | Peg deviates beyond ±2% → automated szBOND issuance, fee adjustments, reserve deployment from the Stability Reserve Fund. |
| 3. Emergency facilities | Required collateral ratios elevate (to 200%+); redemption fee incentives flip negative — paying users to redeem out. Bagehot literally: penalty rate, good collateral. |
| 4. Dilutive backstop | Protocol mints and sells SZK into a market-clearing auction; proceeds purchase szUSD. Subject to the 15% cap. |
| 5. Resolution waterfall | Loss absorption follows the immutable order in Chapter 5. |
Each rung has a specific trigger condition and a specific response. The full parameter table is in § 4.6.
Discussion
The point of the ladder is not the specific calibration of any single rung. It is the existence of the next rung. No rung is the last rung until Layer 5, which is by construction immutable.
✦ Tip
The structural claim of the GCSR is that the ladder, the cap, the floor, and the immutable waterfall together produce a peg-defense regime whose worst case is a number — see § 4.4 — instead of a hope.
See Also
- § 4.2 · The 15% Cap — the parameter that bounds Layer 4
- § 4.3 · The 130% Floor — the absolute minimum collateralization
- § 4.4 · The Bounded-Dilution Proof — the worst case as 43.75%, not infinity
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