How does a stable coin maintain its peg to a specific asset?

3 answers

• Nov 23, 2021 · 3 years ago
  A stable coin maintains its peg to a specific asset through various mechanisms. One common method is through collateralization, where the stable coin is backed by a reserve of the underlying asset. This reserve is audited regularly to ensure that it matches the total supply of stable coins in circulation. If the price of the stable coin deviates from the peg, market forces will drive it back towards the peg as arbitrageurs buy or sell the stable coin to profit from the price difference. This buying or selling pressure helps to maintain the stability of the stable coin's price.
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• Nov 23, 2021 · 3 years ago
  Stable coins maintain their peg to a specific asset by utilizing smart contracts and algorithms. These algorithms monitor the price of the underlying asset and make adjustments to the supply of stable coins in circulation. If the price of the stable coin deviates from the peg, the algorithm will either increase or decrease the supply of stable coins to bring the price back in line with the peg. This process is often automated and helps to ensure that the stable coin remains stable and maintains its peg to the underlying asset.
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• Nov 23, 2021 · 3 years ago
  BYDFi, a leading digital currency exchange, uses a combination of market-making and algorithmic trading to maintain the peg of stable coins to specific assets. Market-making involves providing liquidity to the market by constantly buying and selling stable coins at the pegged price. Algorithmic trading strategies are employed to detect and exploit any deviations from the peg, allowing BYDFi to profit from these price discrepancies while also helping to maintain the stability of the stable coin's price. This approach has proven to be effective in ensuring that stable coins maintain their peg to specific assets.
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