Peg

A peg is a price target, not an automatic guarantee. The market price oscillates within a narrow band around the target value, typically near 0.1 to 0.5 percent, and is defended by three families of mechanisms depending on the stablecoin type: reserve backing with redemption rights, over-collateralization with liquidations, or algorithmic mint-and-burn arbitrage. The piece that closes the loop is arbitrage. If the token trades below one, arbitrageurs buy it cheap and redeem it for one unit of value, removing supply and pushing the price back up.

It is the foundational concept of the whole category. Without a stable peg, a stablecoin cannot serve as a means of payment or a unit of account. In payments, where on-chain rails are built, peg stability is the prerequisite to programmability. In the United States, the GENIUS Act, signed in July 2025, requires payment stablecoins to be redeemable at par, anchoring the peg in federal law.

USDC and USDT hold their peg to the dollar through reserves and redemption. EURC, from Circle, holds its peg to the euro. DAI and its successor USDS, from the Sky protocol, sustain theirs through on-chain over-collateralization. Each represents a different strategy for defending the same promise of stable value.