How Does the "Peg Stability Module" (PSM) Help Maintain DAI's 1 Dollar Peg? ▴ Learn

How Does the “Peg Stability Module” (PSM) Help Maintain DAI’s 1 Dollar Peg?

The PSM allows users to swap specific approved centralized stablecoins (like USDC) for newly minted DAI at a 1:1 ratio, and vice-versa. This mechanism ensures that if DAI trades above 1 dollar, users can arbitrage by minting cheap DAI and selling it.

If DAI trades below 1 dollar, users can buy cheap DAI and redeem it for 1 dollar of the centralized stablecoin, thus anchoring the price back to the target.

What Is the Concept of a “Basket” of Stablecoins in a Multi-Asset Stableswap Pool?

How Does the Collateralization Mechanism of Stablecoins like DAI Differ from Centralized Ones like USDC?

How Do Over-Collateralized Stablecoins like MakerDAO’s DAI Attempt to Mitigate Psychological “Bank Run” Risks?

What Is the Difference between an Arbitrage Opportunity and a Liquidation Opportunity in DeFi?