Peg Mechanism

Ensuring a stable peg is critical to the reliability and utility of NUSD. The protocol employs arbitrage-driven mechanisms to maintain NUSD's $1 peg, even during periods of market volatility. This system works alongside a direct 1:1 redemption feature for major stablecoins, providing a robust and reliable foundation for price stability.

Arbitrage serves as a cornerstone of NUSD's price stability. When the price of NUSD deviates from $1 in external markets, arbitrageurs step in to profit from these discrepancies by minting or redeeming NUSD directly through the protocol. This process naturally realigns NUSD's market price with its $1 target by adjusting supply and demand dynamics.

In addition to arbitrage, the protocol ensures NUSDs stability through its 1:1 USD redeemability for stablecoins, which provides consistent liquidity and price confidence. Users can redeem NUSD at any time, ensuring that its inherent value is always backed by the stability of stablecoin reserves.

There are two primary scenarios where arbitrage and the 1:1 redeemability mechanism work together to maintain the peg:

• NUSD is fully backed by a diversified portfolio of assets, with a portion held in major stablecoins to facilitate 1:1 redemptions.
• A fraction of the reserves (e.g., 0.50%) is held directly in the mint-and-redeem contract to enable immediate redemptions, while the protocol systematically replenishes this balance from the broader reserve pool.
• This ensures that NUSD holders can always redeem their tokens for stablecoin, providing liquidity and stability even during periods of heightened redemption activity.

The 1:1 redeemability of NUSD for USD equivalent in stablecoins ensures that the NUSD's value remains unaffected by temporary liquidity shocks or price dislocations in external markets. This feature, combined with arbitrage incentives, creates a self-correcting system that maintains NUSD's peg during periods of high demand or volatility.