DOLA's value is a result of supply and demand in the open market, primarily determined on decentralized exchanges such as Curve, Sushiswap, SpookySwap and others. If DOLA’s market price goes above $1, this means that there is more demand than there is supply in the open market. To counteract this, Inverse Finance will mint more DOLA into existence on the ‘Supply’ side of lending markets such as Scream Finance. This increase in supply in turn causes the interest rate for borrowing DOLA to decrease. As DOLA becomes cheaper to borrow, more DOLA gets borrowed and the circulating supply in the market increases. This supply increase continues until the market reaches equilibrium (where the supply of DOLA equals the demand for DOLA), which Inverse Finance aims to achieve at $1. If DOLA’s peg falls below $1, then the opposite is done, meaning DOLA on the supply side of lending markets is ‘burned’. This causes the borrowing interest rate to increase, which leads people to buy back DOLA to pay off their loans. This additional buy-pressure in the market returns the value of DOLA back to $1.
Inverse Finance, through the DOLA Fed, maintains the flexibility to adjust borrowing rates across one or even all partner lending markets in order to optimize supply and demand for DOLA and to maintain its USD peg.
The Stabilizer can also be used to arbitrage away price differentials if the peg of DOLA varies from its $1.00 USD peg, guaranteeing an exchange rate of 1 DAI = 0.996 DOLA, or 1 DOLA = 0.996 DAI (provided there is DAI liquidity in the Stabilizer.