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GRAI is an over-collateralized debt token issued by Gravita Protocol. GRAI can be minted by depositing collateral on Gravita Protocol.
GRAI's Vessels' maximum LTV of 90% with WETH as a collateral creates a natural price ceiling at $1.10.
When GRAI exchange rate exceeds that level, borrowers can make an instant profit by borrowing the maximum amount against their collateral and selling GRAI on the market for more than $1.10.
If 1 GRAI trades at $1.20 for example, you can lock up $2200 worth of the LST of your choice, take out a loan of 2000 GRAI and sell it for $2400. No matter if your loans gets liquidated or not, you have made an arbitrage gain of $200.
Since also bLUSD is a supported collateral asset against which users can borrow at up top 99% TVL, GRAI hard ceiling price could also theoretically be considered $ 1.01. However this specific collateral asset will have mint caps in place to avoid excessive sell pressure on GRAI.
The ability to redeem GRAI for collateral creates a hard price floor, below which arbitrage opportunities become profitable.
We call these "hard peg mechanisms" since they are based on direct processes.
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