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What Is the Role of Arbitrageurs in Maintaining the Peg of Both Fiat-Backed and Algorithmic Stablecoins?

Arbitrageurs profit by buying a discounted stablecoin for redemption/swapping, which reduces supply and applies buying pressure to restore the peg.
Greeks.Live22.11.25

What Is the Role of Arbitrageurs in Maintaining the Peg of Both Fiat-Backed and Algorithmic Stablecoins?

Arbitrageurs are crucial for peg maintenance. For a fiat-backed coin, if the market price drops below $1 (e.g. to $0.99), arbitrageurs buy the coin cheaply and redeem it to the issuer for the full $1 of fiat, profiting and reducing the supply to push the price back up.

For an algorithmic coin, they execute complex on-chain swaps between the stablecoin and its governance token to exploit price discrepancies. This continuous buying and selling pressure ensures the market price is constantly pulled back towards the target peg.

How Does an ETF’S’creation and redemption’Mechanism Impact the Underlying Asset’s Price?
How Does the Redemption Mechanism Support a Stablecoin’s Peg during High Demand?
What Is the Difference between a ‘Fiat-Backed’ and a ‘Crypto-Backed’ Stablecoin?
What Is the Difference between an Algorithmic Stablecoin and a Fiat-Backed Stablecoin for Treasury Holdings?

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