Peg Arbitrage

Peg arbitrage, also described as stabilization arbitrage, is the trading activity that pushes a stablecoin back toward its target price. When the token trades below target, arbitrageurs buy it cheaply and redeem it with the issuer or protocol for full value; when it trades above, they mint new tokens at par and sell them into the market. The mechanism only works if minting and redemption are genuinely open, fast, and cheap enough to cover fees, transfer costs, and capital tied up while the trade settles. Access limits, minimum sizes, blocked accounts, or network congestion can break the loop and leave a discount in place. Who can actually perform this arbitrage explains much of a stablecoin's day-to-day price behaviour.