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From this article, I read:

When Dai below the target price the following happens:

  • The Target Rate increases.
  • This causes the Target Price to increase at a higher rate.
  • This causes Dai generation via CDP to become more expensive.
  • The increased target rate causes an increase in Dai demand.
  • The combination of reduced supply and increased demand causes a rise in Dai’s prices pushing it towards the Target Price.

This is supposed to be an explanation showing the effect of TRFM, but still I do not understand. So far, my understanding is that:

  1. The target rate increase. So, if DAI is .90 USD, then target rate is 11% to bring back DAI to 1 USD?

  2. This causes the Target Price to increase at a higher rate. I thought target price was always set to 1 anyway so that 1 USD = 1 DAI. So, why there is a need to increase the target price?

  3. This causes Dai generation via CDP to become more expensive. I guess we are talking about mining? So, there's a cost to mine DAI like mining BTC? I thought that by depositing, for example, 1 ETH into a vault, I'd get 66 DAI (if 1 ETH = 100 USD) without effort. So, apparently, there is an “effort” to mine DAI. I don't understand. Why creating DAI out of thin air would involve some cost?

  4. The increased target rate causes an increase in Dai demand. Well, again, this is not obvious to me. I don't see any connexion between an increased target rate and higher demand for DAI.

  5. The combination of reduced supply and increased demand causes a rise in Dai’s prices pushing it towards the Target Price. That is 101 economics. I understand.

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