# Stability Fund

The LHYPE Stability Fund is a Peg Stability Module (PSM) to strengthen the peg of LHYPE while simultaneously generating additional yield for LHYPE holders.

PSM is a mechanism (originally popularized by MakerDAO) that helps maintain a stable “peg” by letting people swap in/out of a token at nearly 1:1 with minimal slippage. The idea is to capture and redistribute the arbitrage value back to vault holders instead of letting external traders capture it.

### How it works

If LHYPE trading on secondary markets deviates from its underlying value, the protocol-owned LHYPE Stability Fund will either buy or sell LHYPE on a DEX to align the market price with the actual value.

The LHYPE Stability Fund monitors market prices across several decentralized exchanges (DEXes) in real-time to identify potential scenarios where LHYPE is under- or over-pegged. When an arbitrage opportunity is recognized, the LSF automatically buys or sells LHYPE to correct the market and bring its price back to its underlying value. The additional yield generated from these transactions is then redistributed evenly among LHYPE holders, rather than being lost to external arbitrageurs.

#### *Simplified Scenario 1 (LHYPE under* fair value*):* 

LHYPE fundamental value: 1.2 HYPE 

Market price: 1.1 HYPE (undervalued) 

**Action:**

1. Fund spends 100 HYPE to buy 90.9 LHYPE
2. Fund redeems 90.9 LHYPE for 109.08 HYPE (resulting in 9.8 HYPE profit for LHYPE holders)

**Result:**

1. Fundamental Value Increases to 1.21 HYPE (profit for LHYPE holders)
2. Market Price now matches fundamental value of 1.21 HYPE

#### *Simplified Scenario 2 (LHYPE a*bove fair value*):* 

LHYPE fundamental value: 1.2 HYPE 

Market price: 1.3 HYPE (overvalued) 

**Action:**

1. Fund spends 100 HYPE to mint 83.3 LHYPE
2. Fund sells 83.3 LHYPE for 108.3 HYPE (resulting in 8.3 HYPE profit for LHYPE holders)

**Result:**

1. Fundamental Value Increases to 1.21 HYPE (profit for LHYPE holders)
2. Market Price now matches fundamental value of 1.21 HYPE

***


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