What Is an Arbitrageur Repairing During a Depeg?
Push the market price to $0.94 and use redemption to see why supply contraction can help without guaranteeing a return to $1.
- Separate market price from protocol target price
- Explain the incentive to redeem below target
- Observe why a depeg cannot be repaired by a slogan alone
- PREVIOUSWhy Can $100 Mint Only 66?
- CURRENTWhat Is an Arbitrageur Repairing During a Depeg?
Push the market price to $0.94 and use redemption to see why supply contraction can help without guaranteeing a return to $1.
- NEXTWhat Happens When Everyone Wants Out?
Think about these questions first.
Choose an answer before opening the explanation. You can add anything unexpected to your review list.
Q01A stablecoin falls to $0.90. Why might arbitrage not restore $1 immediately?＋
Buying has a reliable exit only if redemption near $1 works, is not paused, and fees and delay risk are small. Without credible redemption, $0.90 may price risk rather than offer a free ten cents.
A depeg is not a bug fixed by one button. It exposes the gap between market price, protocol target, reserve assets, and participant incentives. Drop USD-LAB to $0.94, then inspect what redemption can actually do.
Which price is the arbitrageur repairing?
When USD-LAB trades below $1 while the protocol still permits redemption near $1, an arbitrageur may:
- buy USD-LAB cheaply in the market;
- redeem it for reserve assets under the protocol rule;
- keep the difference while shrinking supply.
This path does not guarantee that price returns to $1 immediately. It depends on available reserves, redemption not being paused, market liquidity, and clean price inputs.
COLLATERAL → USD-LAB
Put a one-dollar target stablecoin into a state machine and watch minting, price, redemption, and reserves define the stability boundary.
Push the market below target, then compare redemption with supply contraction.
- Wallet collateral
- 1,000
- Your USD-LAB
- 0
- Lost reserves
- 0
- Total redeemed
- 0
Supply is a protocol promise; reserves are the assets actually available at exit. Keep both on the same ledger.
Move the outside market, then choose when the oracle updates. Current deviation 0.00%.
Supply does not shrink automatically when reserves are lost. Apply loss, redeem part of the balance, and inspect coverage and exit capacity.
Deposit collateral, then mint USD-LAB. Target, market, and oracle prices are three different states.
- 01
USD-LAB created：target price 1.00 USD, minting must be backed by collateral.
Use the slider to return to an earlier step. Continuing from there replaces the later history with a new sequence.
Expand: how this step works
marketPrice < targetPrice
→ buy discounted stablecoin
→ redeem under the protocol rule
→ burn supply and receive reserve
Arbitrage turns a price gap into a behavioral incentive, but it cannot replace reserve proof, liquidity, or correct outside data. Check “can arbitrage” and “can redeem” as separate conditions.
Why can redemption sometimes help a $0.94 stablecoin move back toward its target?
The state you carry forward
Depeg repair is a process completed by participants and reserves, not a single formula. Finally, thin the reserves and watch a run and stale oracle data compound.