Stablecoin Glossary
Arbitrage Mechanism
An arbitrage mechanism refers to market incentives that encourage traders to restore a stablecoin's price to its target peg.
Explanation
When a stablecoin trades above or below its reference value, arbitrageurs can buy or redeem tokens to profit from the difference. This activity helps push the market price back toward the peg.
Why it matters
Arbitrage activity is a key market mechanism supporting price stability in many stablecoin systems.
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