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How Does a Decentralized Stablecoin Maintain Its Dollar Peg?

Peg is maintained through over-collateralization, stability fees, and arbitrage incentives enforced by smart contracts.
Greeks.Live16.11.25

How Does a Decentralized Stablecoin Maintain Its Dollar Peg?

Decentralized stablecoins maintain their peg through a combination of economic incentives and collateral management enforced by smart contracts. Mechanisms include over-collateralization, stability fees (interest rates), and arbitrage opportunities.

Arbitrageurs are incentivized to buy the stablecoin if it falls below $1 and sell if it rises above $1, restoring the balance.

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