Peg maintenance is the set of mechanisms and market incentives used to keep a stablecoin's market value close to its target reference value.
Peg maintenance depends on the stablecoin's design. Reserve-backed arrangements typically rely on issuance and redemption at par, combined with arbitrage between the primary and secondary markets. Crypto-collateralized arrangements may use collateral requirements, liquidations, and incentive mechanisms. Algorithmic designs may adjust supply or use linked assets to encourage trading back toward the target. The effectiveness of these mechanisms can weaken when liquidity falls, redemption becomes constrained, or confidence deteriorates.
Peg maintenance describes the ongoing process that supports price alignment. Stability mechanism is the broader design architecture that determines how the stablecoin seeks to preserve value.
The strength of the peg-maintenance process affects how readily the market price remains near, or returns toward, the reference value during normal conditions and periods of stress.
If a redeemable dollar stablecoin trades below $1, eligible arbitrageurs may buy it in the secondary market and redeem it at par, creating demand that can push the market price back toward the target.