To help drive incentive and to create a peg and to also provide insurance for those who hold iusd.
This provides insurance on iusd. the insurance would be to protect the iusd position in case iusd goes down and will also provide incentives for stabilizing iusd by creating a new market and liquidity.
Alice owns 100 iusd and wants to protect her position so if it goes down Alice does not lose much money.
Alice is willing to spend 10% of her IUSD value as insurance to protect her iusd position for the year.
For this cost Alice would be protected if IUSD ever dropped below .90 USD. Meaning if Alice has 100 IUSD and put up 10 IUSD then Alice can sleep at night and not worry about IUSD falling, she can keep it staking and earning or just hold it to hedge against her other investments.
So who is going to be interested in covering for Alice if IUSD starts to drop?
Bob is interested in having some money aside to take advantage of depeg. Bob’s money wouldn’t just sit there, Bob is getting Alice’s 10 IUSD that she paid as insurance.
So Bob sets asides the 100 IUSD for Alice and would be ready to purchase Alice’s IUSD at 1$ within the next year if IUSD drops below .90. Bob is making a nice return off this and if IUSD stays above .90 then Alice doesn’t need a bailout and Bob just made 10 IUSD for basically just having a limit order that never hit. And Bob really only starts losing money if IUSD goes below .90 because he took in 10 IUSD and bought 100 IUSD from Alice at $1.
Bob doesn’t even care if IUSD goes to zero cuz he feels IUSD probably wont go below .90 and even if it does, he still gets IUSD at a discount and can burn his IUSD debt down for a satisfactory price.
So Alice can pay 10% for insurance and do her own investing, and Bob gets a good deal too.
This will help to keep a hard market for IUSD at .90, or whatever the “insurance” deal is worked out to be. it really is a person to person options contract and could get very competitive, creating a ton of limit orders to purchase IUSD at certain discounts with incentive, this is paid buy those who want to protect their IUSD position.
And also locking in those farmers who are providing liquidity and keeping the IUSD in pools because now stackers and farmers know their max loss and have more stable estimated returns ahead.