How Do Stablecoins Maintain Their Peg?
The Block·
60-second summary
Stablecoins maintain their peg through reserves or collateral and an arbitrage process that returns the market to equilibrium when prices deviate. The vast majority of stablecoins target a price of one U.S. dollar. This mechanism ensures stability, allowing users to exchange stablecoins for fiat currencies or other cryptocurrencies with minimal price fluctuations, thereby maintaining investor trust in the market.
A stablecoin peg is the target price a stablecoin is designed to hold. For the vast majority of stablecoins, this target is one U.S. dollar. Stablecoins maintain that price through two mechanisms. The first is reserves or collateral that give each token its underlying value; the second is an arbitrage process that returns the market […]