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

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.

How Does a Decentralized Autonomous Organization (DAO) Structure Help Prevent Rug Pulls?

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

What Is the Difference between Minting and Burning a Stablecoin?

How Do Decentralized Exchanges Differ from Centralized Exchanges in the Context of Rug Pulls?

What Is the Role of Community and Social Media in Both Promoting and Exposing Potential Rug Pulls?

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

How Does an On-Chain Collateralized Stablecoin like DAI Maintain Its Peg?

How Do Arbitrage Opportunities Help Maintain the Price Peg of a Synthetic Asset?

Glossar

Minting and Burning

Creation ⎊ Minting and burning represent dual processes integral to token economies, fundamentally altering circulating supply and influencing asset valuation within decentralized systems.

Centralized Stablecoins

Custody ⎊ Centralized stablecoins represent a cryptographic token designed to maintain a stable value, typically pegged to a fiat currency, but crucially rely on a centralized issuer for backing and management of reserves.