The PSM (Peg Stability Module) is the core mechanism that maintains the 1:1 peg of USDD to the US dollar. Through an arbitrage-driven market adjustment mechanism, it builds a strong price stability defense for USDD.

Arbitrage mechanism: automatic price anchoring correction

The core design of the PSM is to allow users to exchange USDT/USDC for USDD at a fixed exchange rate of 1:1, with zero slippage and zero fees throughout the process. The brilliance of this mechanism lies in its ability to make market participants natural price guardians.

When the market price of USDD deviates from 1 dollar, arbitrage opportunities are automatically triggered: if USDD falls to 0.98 dollars, arbitrageurs will buy USDD at 0.98 dollars and then exchange it for USDT at 1 dollar through the PSM, earning a 2% risk-free profit. This arbitrage behavior will continue until the price of USDD rises back to 1 dollar. Conversely, when USDD rises to 1.02 dollars, arbitrageurs will mint USDD and sell it, increasing market supply and pushing the price back down.

Multi-currency support: Multiple guarantees for liquidity

PSM not only supports USDT but is also gradually expanding to various stablecoins such as USDC, TUSD, and USDJ. This multi-currency support strategy significantly enhances the liquidity and price stability of USDD. Each stablecoin can be exchanged at a 1:1 low-fee rate through USDD as an intermediary, bringing new application scenarios to the USDD ecosystem and improving overall liquidity.

Data verification: Effectiveness of the mechanism

The actual performance of PSM has validated the effectiveness of its stability mechanism. In the third quarter of 2025, the total amount of USDD exchanged by users through PSM increased from $1.15 billion in the second quarter to $2.5 billion, a quarter-on-quarter growth of 117%; during the same period, the redemption amount increased from $1.24 billion to $2.7 billion, a quarter-on-quarter growth of 119%. This indicates that PSM has been able to effectively respond to large-scale demand fluctuations and maintain USDD at its pegged price through arbitrage mechanisms.

Synergistic effects of over-collateralization

The over-collateralization mechanism of PSM and USDD forms a synergistic effect. By early September 2025, the total value of collateral reserves for USDD had peaked at over $620 million, consistently exceeding the circulating supply and strictly maintaining an over-collateralized state. This dual assurance mechanism allows USDD to maintain price stability even under extreme market conditions.

Transparent on-chain verification

All collateral supporting USDD is stored in publicly verifiable smart contracts, allowing users to check the contract address on the blockchain explorer to verify funds at any time. This design of full on-chain transparency makes the operation of PSM completely open and traceable, enhancing market trust.

The price stability module of PSM constructs a self-regulating, market-driven price stability system through arbitrage mechanisms, multi-currency support, synergistic over-collateralization, and complete transparency, providing a solid guarantee for the long-term stable operation of USDD. @USDD - Decentralized USD #USDD以稳见信