# Our Stablecoin: taoUSD

**taoUSD** is the first **over-collateralized stablecoin backed by wTAO**, engineered for **low volatility** and **soft-pegged to the US dollar**. The protocol maintains a tight price band (typically between **$0.995 and $1.005**) through a set of economic mechanisms designed to promote price stability and user incentives.

#### Stability Mechanisms

* **Debt Issuance and Repayment**\
  If **taoUSD** falls below peg (by more than the 0.5% issuance fee), users are incentivized to **purchase taoUSD** on the market to **repay their interest-free debt**, reducing supply.\
  If the price exceeds the peg by more than the fee, users are incentivized to **borrow more taoUSD** to sell at a premium, increasing supply and bringing the price down.
* **Liquidity Incentives**\
  **TrustedStake** partners with external protocols to **incentivize taoUSD/USDC liquidity** on platforms like **Uniswap**, increasing depth and reducing slippage.
* **Redemptions**\
  Redemptions are **restricted to protocol-owned, whitelisted addresses**, preventing unrestricted capital outflows. **Profits from redemptions** are recycled into **taoUSD liquidity**.
* **Liquidations**\
  If a vault becomes undercollateralized, the protocol initiates a **Dutch auction** where bidders can acquire the vault’s **wTAO collateral at a discount using taoUSD**. If no bids are placed, the protocol proceeds with automated liquidation to preserve system solvency.
