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What Is the Primary Drawback of Relying on the PSM for Peg Maintenance?

It introduces centralization risk by relying on centralized stablecoins as collateral, making the protocol vulnerable to their regulatory and solvency risks.
Greeks.Live21.11.25

What Is the Primary Drawback of Relying on the PSM for Peg Maintenance?

The primary drawback is that the PSM introduces centralization risk into the decentralized stablecoin. By accepting centralized stablecoins like USDC as collateral, the protocol becomes dependent on the regulatory compliance and solvency of the centralized issuer.

If the centralized stablecoin is frozen or fails, the decentralized stablecoin's peg and stability are directly jeopardized.

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