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How stablecoins keep their dollar pegs

The peg relies on both reserve backing and an arbitrage process that pulls market prices back toward one U.S. dollar.

Reported · Written up by our desk · Stablecoins

Stablecoins are designed to trade at a target price, most commonly one U.S. dollar, and that target is known as the peg, according to The Block.

For most stablecoins, the outlet says there are two main mechanisms supporting that peg.

First, stablecoins use reserves or collateral that are meant to represent the value of each token. Second, they use an arbitrage process intended to bring market prices back in line with the one-dollar target when trading drifts.

The Block describes the peg as the combination of backing and trading incentives that keep stablecoins near their intended price.

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