What Is the Role of the Arbitrageur in Maintaining an Algorithmic Stablecoin’s Peg?
Arbitrageurs are crucial for peg stability. If the stablecoin trades below $1, they buy it cheaply and redeem it for $1 worth of the backing asset, profiting and pushing the stablecoin's price up.
If it trades above $1, they mint the stablecoin by selling the backing asset, profiting and pushing the price down. This mechanism works until confidence is lost.
