Recently, many people have asked why some algorithmic stablecoins can achieve ultra-low borrowing rates of 1%. Let me break down the underlying logic.

The core mechanism is quite simple: automatically adjusting supply through algorithms to stabilize the price. When the price is above $1, it automatically issues more tokens; when below $1, it repurchases and burns tokens. This maintains the price peg, and borrowing costs naturally decrease.

So how exactly does it work? I'll break it down into four technical points:

**First: Over-collateralization**

To borrow $70 USD1, you need to collateralize $100 worth of BTCB. This ratio is much more flexible than Aave or Compound. Lower risk means lower default rates, reduced liquidation pressure, and a more stable protocol.

**Second: Fully automated**

Supply adjustments are fully algorithm-driven without manual intervention. When demand is high, it automatically issues more tokens; when demand is low, it repurchases. This not only stabilizes the price but also significantly reduces operational costs.

**Third: Liquidity incentive mechanism**

Users who deposit USD1 into the liquidity pool receive token rewards. This move is very effective; now, the total value locked (TVL) in liquidity pools has exceeded $100 million. Sufficient liquidity keeps slippage and interest rates very low.

**Fourth: Multi-asset support**

BTCB, ETH, BNB, USDT can all be used as collateral. With more options, more users participate. The more users, the higher the protocol revenue, which can further drive down interest rates.

When these four layers are combined, a 1% borrowing rate becomes feasible.