How Does a Decentralized Stablecoin Maintain Its Price Peg without a Central Bank?

It uses automated mechanisms, typically smart contracts, to manage supply and demand. For collateralized stablecoins, users over-collateralize their positions with volatile crypto assets to mint the stablecoin.

If the collateral value drops, liquidation mechanisms are triggered to maintain the peg. Algorithmic stablecoins adjust supply by burning or minting tokens based on market price fluctuations.