The autoUSDai protocol is increasing its debt cap by $100 million in a targeted move to stabilize its USDai stablecoin, which saw its peg climb to $1.06 amid high demand and market inefficiencies on the Euler Frontier market. This action is designed to support the orderly unwind of USDT0.

This matters as it demonstrates an active, incentive-driven approach to maintaining peg stability, a critical challenge in decentralized finance. The protocol is implementing several measures to restore order, including pausing all USDai borrowing on Plasma and requiring all open borrowing positions to be repaid and closed in a timely manner. Partial repayments will be enabled to facilitate this process.

To support the stabilization, all new USDC deposits on Arbitrum will be routed directly into the autoUSDai vault, and depositors will receive USDC upon withdrawal. These funds are earmarked to facilitate liquidations and buybacks for the Frontier market, with risk curation for the vault being managed by K3 Capital.

To reward participants aiding the stabilization, autoUSDai depositors will earn a 25x points multiplier for a 30-day period. Any profits generated from the unwind operations will be distributed as additional yield. Concurrently, the protocol is reducing the Allo Game™ multiplier for non-aligned liquidity pools from 10x to 3x to curb unproductive market dilution.