Soft-Pegging to the US Dollar
Soft-Pegging of FXD's market price to $1 is done by arbitrageurs. This section explains FXD pegging mechanism.
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Soft-Pegging of FXD's market price to $1 is done by arbitrageurs. This section explains FXD pegging mechanism.
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How pegging works
When the price of FXD on some market (DEX or CEX) is less than $1, the arbitrageurs are looking for an incentive to arbitrage it with the market, which has a price closer to or more than $1. The below images show how the FXD price is pegged from time 0 to time 2.
When the market price of FXD is greater than $1, it provides an incentive to sell FXD in the market. The below images show how the FXD price is pegged from time 0 to time 2.
StableSwapModule (SSM) is the special mechanism developed by the Fathom team to provide an additional incentive for arbitrageurs.
