GlossaryAdvanced
Peg Arbitrage
The trading activity that profits from, and helps correct, a stablecoin's price drifting away from its target.
Peg arbitrage is the trading activity that buys a stablecoin below its target price (or sells it above) and redeems or mints it at the target value, profiting from the gap while pushing the market price back toward the peg.
This mechanism only works as fast as the underlying redemption or minting process allows, which is why a sufficiently fast, trustworthy redemption mechanism matters for peg stability.
Examples
- Peg arbitrage profits from buying an undervalued stablecoin and redeeming it at full value.
- A slow or restricted redemption process can weaken peg arbitrage's ability to correct a depeg.