The Interswap serves as the main mechanism for reinstating prices for the mellow synthetic tokens (mAssets). The Interswap is managed by the Interswap.sol contract. Liquidation and harvested yield will both go straight to the InterswapBuffer. To ensure that Interswap depositors receive a 1:1 redemption of mAssets for their underlying collateral, the InterswapBuffer will transfer funds to the Interswap at a rate and limit established by governance.
Users fund the Interswap with mUSD. As yield, liquidations, and repayments are received, it will credit users (for instance) DAI according to the amount of mUSD they have placed, in relation to the total amount of mUSD staked. In the event that a user decides to withdraw the converted DAI, an equivalent amount of mUSD will be burned.
The flow rate of the InterswapBuffer determines the speed at which funds can be converted to their underlying collateral. More details can be found in The Interswap Redefined. This ceiling protects the Interswap from being depleted by minuscule (0.1%) arbitragers and also generates a front-stop (i.e., surplus) pool of funds that would sit idle until eventually authorized to be converted. The Interswap was improved to send considerable excess cash to the Grindstone AMO rather than letting these funds sit dormant.