# PSALM

### a. PSALM Working Mechanism <a href="#id-7c78" id="id-7c78"></a>

<figure><img src="/files/Y6ZZavCuXlqKyuwiVBHm" alt=""><figcaption></figcaption></figure>

The Protocol Smart Arbitrage Leveraging Mechanism (PSALM) serves a dual purpose of maintaining the price stability of gmUSD and generating revenue for the protocol. It achieves this by using two types of arbitrage trades — above peg and below peg arbs:

* **The above peg arb** involves minting gmUSD with gDAI or gmdUSDC at a 1:1 ratio and then selling it at an overpriced rate until it reaches the peg. The premium collected from this sale is then used as revenue.
* **The below peg arb**, on the other hand, involves burning gmUSD and redeeming gDAI + gmdUSDC from the collateral reserve at a 1:1 ratio.

This is used to buy back gmUSD until it reaches the peg, and again, the premium collected is used as revenue.

### b. Advantages of PSALM <a href="#d74c" id="d74c"></a>

It’s important to note that all arbitrage trades must be completed in a single transaction and can only be executed if there is a profit to be made. This ensures that the protocol will always profit and that gmUSD is always fully-backed at a 1:1 ratio.

One of the advantages of PSALM is that the protocol does not have to compete for MEV. This is due to the fact that GND Protocol is the only entity allowed for minting and redeeming gmUSD, ensuring that arbitrage trades will always be profitable for the protocol before any third party.

Additionally, the single-block mint/redemption arbitrage allows the protocol to out-compete market participants trying to take advantage of the premium/discount.


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