$USDP is pegged against the US dollar in a free-floating peg. Meaning that the value of $USDP although pegged against the US Dollar, it will still experience low level fluctuation in value.
$USDP maintains its stability through a combination of external (market), internal forces, and incentivization tools utilized by $DUCK token holders & Protocol Team.
Every issued $USDP is overcollateralized, meaning that at any given point of time, the value of provided collateral is higher then the value of circulating $USDP.
Unit protocol takes into account that the market can be self-regulated and ensures that the price of stablecoin reaches its peg. Unit protocol lets users issue the $USDP stablecoin for a provided collateral. Instead of focusing on the stablecoin price, it focuses on the value of $USDP to ensure that it reaches the peg over time. This mechanism allows Unit Protocol to scale in the long run.
If we don't take into account price recovery, there are only there possible outcomes:
Users deposit more collateral and restore the peg;
Users repay $USDP loan fully or partially and restore the peg;
Users don't take any actions and let the Liquidation ratio to be reached, eventually restoring the peg.
In Unit protocol, every USDP is fully backed by provided collateral. If the debt/collateral ratio exceeds a Liquidation Ratio (LR) for a CDP, it will be subject to liquidation. Anyone can trigger liquidation by sending a trigger transaction. There are liquidation bots that consistently monitor CDPs and trigger liquidations if the stated condition is met.
After a CDP is triggered for liquidation, a Dutch auction starts for underlying collateral with a linear decrease in price. (the price decremental step can be different for various assets, but for the most amount of assets it is ~0.09% decrease per block).
Every participant can buyout the part of the collateral for the current price by paying the USDP debt for a liquidated CDP. USDP debt is equal to borrowed USDP amount plus the liquidation fee in % from this amount.
After collateral realization, the remaining part is returned to the borrower's address, their USDP debt is burned, and the liquidation fee is sent to the governance pool address for fee distribution.