> For the complete documentation index, see [llms.txt](https://elysia.gitbook.io/elusd/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://elysia.gitbook.io/elusd/risk-management/peg-stability-mechanism.md).

# Peg Stability Mechanism

ELUSD maintains price stability through a mint–redeem arbitrage design.

When the market price deviates from the 1 USDT reference, arbitrage incentives naturally pull the price back toward parity.

<table><thead><tr><th width="155.7919921875">Case</th><th>Action</th><th>Outcome</th></tr></thead><tbody><tr><td><p>Upper cap</p><p>(Price > 1 USDT)</p></td><td>Users mint ELUSD at 1 USDT and sell on the market</td><td>Supply increases → downward price pressure</td></tr><tr><td><p>Lower floor </p><p>(Price &#x3C; 1 USDT)</p></td><td>Users buy ELUSD below par and redeem for 1 USDT</td><td>Supply decreases → upward price pressure</td></tr></tbody></table>

This structure enables a market-driven, decentralized peg without centralized intervention.<br>

#### Peg Band

In real trading environments, factors such as redemption wait times, spreads, fees, and liquidity mean the market price may not always be exactly 1 USDT.

Reflecting these practical conditions, ELUSD is designed to maintain stability within an operational tolerance band of 0.995 – 1.005 USDT under normal market conditions.