How is $MONEY made

$MONEY is created through depositing collateral and opening loans

$MONEY is a collateralization-based stablecoin, which means that the value of $MONEY is backed by the value of other supported assets such as BTC or ETH. Anytime someone wants to create $MONEY, they have to deposit some assets such as BTC or ETH, and lock that up as collateral in a smart contract that could be sold to cover the value of the borrowed $MONEY if needed.

Depositing collateral to mint a stablecoin is commonly referred to as opening a collateralized debt position (CDP).

If the value of the collateral drops below a certain threshold, the smart contract will automatically begin trading some of the collateral to ensure that $MONEY is always backed by the equivalent amount in USD. You always have to deposit slightly more collateral in dollar-value amounts than what you are minting, but how much you overcollateralize depends on how much risk you are willing to take: depositing more collateral relative to how much you borrow creates a wider safety margin against price drops of the collateral that could trigger conversion, thus lowers risk.

A neat part about the Automated Loan Protection protocol is that there isn't as much of a need to over-collateralize as in some other lending protocols because of the efficient AMM design, making the $MONEY protocol more scalable and sustainable (less "unused" value sitting in a contract not contributing to generating more value).

A CDP-based stablecoin is also permissionless and decentralized way of ensuring that the stablecoin's value is actually worth what it sets out to be. It can easily be verified, as all contracts and collaterals are public and transparent, compared to centralized versions of stablecoins such as USDC and USDT that are backed for instance by holdings in bank accounts in centralized institutions.

What distinguishes $MONEY from other CDP-based stablecoins?

What distinguishes the $MONEY protocol from other collateral-based stablecoins is the Automated Loan Protection system. When a user creates a loan in the $MONEY protocol, their CDP is structured with multiple separate bands in a liquidity pool, each band representing a different price segment. You can think of it as pouring your collateral into multiple ordered columns with staggered prices. Each band represents a portion of the collateral that would get traded at a particular price point if the price of the collateral reaches there.

By splitting the collateral into bands, loans don't have to be instantly liquidated if the liquidation price is hit (as in other lending protocols), as the liquidation price is instead "spread out" in a range to lower the risk. And the bands themselves don't just get sold, they can be traded back to the collateral as in an AMM liquidity pool. This protects users against short-term price volatility that otherwise could instantly liquidate and close their loan leading to an instant loss. This makes borrowing much more user-friendly and easier to manage.

And this is what happens if the collateral price falls within the conversion range (it's called conversion instead of liquidation because the collateral can be sold but also bought back, hence conversion). The Automated Loan Protection smart contract automatically balances the position to ensure it remains collateralized (backed by value). The collateral partially gets exchanged into $MONEY that can be used to pay back the loan.

And if the price of the collateral recovers, the smart contract will even reconvert the collateral back for the user automatically!

This is why it is called Automated Loan Protection, because it automatically protects users' collaterals during price volatility.

---

For a guide on how to create $MONEY, check out the tutorials.