How PSM Works

The Peg Stability Module (PSM) is SPAI Finance's key innovation for maintaining spBNB's peg while generating sustainable protocol revenue.

Core Mechanism

The PSM operates through a simple but powerful process:

1

User claims rewards

User has farmed SPAI rewards and decides to claim them from the spBNB/BNB or SPAI/BNB pool.

2

Fee calculation

PSM calculates fee based on:

• Default rate: 30% (subject to dynamic adjustment)

• Claimed amount: Total SPAI being claimed

• spBNB equivalent: Fee paid in spBNB value

Example:

• User claims 100 SPAI

• SPAI price = $5

• Total value = $500

• 30% fee = $150 worth of spBNB

3

Fee deduction

The protocol deducts the fee before distributing rewards:

• User receives: 70 SPAI

• Protocol receives: $150 worth of spBNB equivalent

4

spBNB purchase

The protocol must acquire spBNB to collect the fee:

• Buys spBNB from market (if fee is in SPAI)

• Creates buy pressure on spBNB

• Supports the peg mechanically

5

Treasury deposit

The spBNB flows to protocol treasury:

• Strengthens backing ratio

• Provides resources for expansion

• Can be deployed to defend peg

• Accumulates over time

Why This Supports the Peg

Immediate buy pressure

Every claim = spBNB purchase:

• Users claim 10,000 SPAI per day

• $50,000 in value at $5 per SPAI

• 30% fee = $15,000 of spBNB purchased

• Continuous daily buy pressure

This mechanical buying helps maintain upward pressure on spBNB price.

Reduced sell pressure

PSM reduces net SPAI hitting the market:

• Without PSM: 10,000 SPAI enters circulation

• With PSM: Only 7,000 SPAI enters circulation

• 30% reduction in selling pressure

Less SPAI selling = more capital available to support spBNB.

Treasury strength

Accumulated spBNB strengthens the protocol:

• Higher backing ratio: More expansion capability

• Defense reserves: Can deploy during peg stress

• Confidence signal: Users see strong treasury

• Compounding effect: Stronger treasury enables more growth

Arbitrage incentive

Treasury-owned spBNB can be deployed strategically:

• If spBNB drops to 0.95, treasury can buy

• Provides price floor at profitable levels

• Reduces panic selling risk

• Creates predictable arbitrage opportunity

Revenue Generation

PSM is the protocol's primary revenue source.

Consistent flow

Unlike expansion rewards (intermittent), PSM generates revenue continuously:

• Every day: Users claim rewards

• Every claim: Fee is paid

• Predictable: Roughly proportional to farming activity

• Sustainable: Not dependent on infinite growth

Scaling with activity

Revenue grows naturally with protocol success:

• More TVL → More rewards → More claims → More fees

• Self-reinforcing: Success breeds more revenue

Multiple uses

PSM revenue enables:

• Peg defense: Deploy to buy spBNB below peg

• Expansion backing: Support new mints during expansion

• Protocol development: Fund improvements and audits

• Liquidity incentives: Bootstrap new pools if needed

Mathematical Example

Let's trace $10,000 through the system:

User farms for 1 week:

• Deposits: $10,000 LP

• Pool APR: 150%

• Weekly rewards: ~$300 worth of SPAI

User claims rewards:

• Gross rewards: $300

• PSM fee (30%): $90

• Net received: $210

Protocol receives:

• $90 worth of spBNB

• Buys from market (creates demand)

• Adds to treasury

Treasury impact:

• Was: $1,000,000 backing for 900,000 spBNB (111% backing)

• Now: $1,000,090 backing for 900,000 spBNB (111.01% backing)

• Improved by $90

Across all users daily:

• Assume $100,000 in daily claims

• $30,000 PSM fees

• $30,000/day = $900,000/month treasury growth

• Compounds backing ratio significantly

Fee Payment Options

Depending on implementation, fees might be collected as:

Option 1: SPAI payment (converted to spBNB)

• User claims SPAI

• Protocol takes 30% SPAI

• Sells SPAI for BNB

• Buys spBNB with BNB proceeds

• Deposits spBNB to treasury

Effect: SPAI sell pressure, spBNB buy pressure

Option 2: Direct spBNB payment

• User claims SPAI

• Protocol calculates spBNB equivalent of 30%

• User must have spBNB or acquire it

• User pays fee in spBNB

• User receives 70% SPAI

Effect: Direct spBNB buy pressure, no SPAI sell pressure

Implementation details determine which method is used. Both accomplish the goal of acquiring spBNB for treasury.

Comparison to Zero-Fee Protocols

Why not just eliminate the fee?

Without PSM:

• ❌ No revenue generation

• ❌ All rewards hit market immediately

• ❌ Higher sell pressure on SPAI

• ❌ No buy pressure for spBNB

• ❌ Weaker treasury backing

• ❌ Less expansion capability

• ✅ Users keep 100% of rewards

Result: Potentially higher initial APR but lower sustainability

With PSM:

• ✅ Consistent revenue

• ✅ Reduced sell pressure

• ✅ Mechanical buy pressure

• ✅ Stronger treasury

• ✅ Better expansion capability

• ✅ Higher protocol sustainability

• ❌ Users keep only 70% of rewards

Result: Lower gross APR but higher likelihood of long-term success

User Perspective

The tradeoff & how to optimize

The tradeoff

You're paying 30% fee in exchange for:

• Protocol stability: Better peg maintenance

• Sustainable yields: Longer-lived protocol = longer earning period

• Strong backing: Confidence that protocol can weather storms

• Expansion capability: More frequent reward periods

30% × infinite yields > 100% × zero yields (from dead protocol)

Optimizing for PSM

To minimize fee impact:

• Claim less frequently: 52 fee payments (weekly) vs 365 (daily)

• Compound strategically: When fees are lower

• Time with market: Claim when SPAI price is high

• Monitor fee adjustments: AI may change rates

Accepting the fee

Think of PSM fee as:

• Protocol insurance: Protecting your investment

• Sustainability tax: Funding long-term viability

• Alignment mechanism: Ties your success to protocol success

Without PSM, protocol death risk much higher.

Transparency and Monitoring

Users should be able to track:

• Current fee rate: Real-time visibility (might not be 30%)

• Fee adjustments: Historical changes and reasoning

• Treasury impact: How fees strengthen backing

• Revenue generated: Total accumulated via PSM

Transparency builds trust and helps users optimize claiming strategies.