> ## Documentation Index
> Fetch the complete documentation index at: https://docs.tori.finance/llms.txt
> Use this file to discover all available pages before exploring further.

# Peg Mechanism

> How trUSD maintains its dollar peg

## Overview

trUSD is designed to track the value of USD, targeting a price of \$1.00. The peg is maintained through economic incentives that make it profitable for market participants to correct any deviations.

## How the Peg Works

### The Core Mechanism

trUSD's peg stability relies on **arbitrage incentives**. When trUSD trades away from \$1.00, market participants can profit by helping restore the peg:

<Accordion title="When trUSD > \$1.00 (Trading at Premium)" icon="arrow-up">
  **What happens:**

  1. trUSD is trading above \$1.00 on the open market (e.g., \$1.02)
  2. Verified participants can mint new trUSD from the protocol at NAV (\~\$1.00)
  3. They sell the newly minted trUSD on the open market at \$1.02
  4. This increases trUSD supply and pushes the price down toward \$1.00
  5. The arbitrageur profits from the difference

  **Result:** Market price is pushed back down toward \$1.00
</Accordion>

<Accordion title="When trUSD < \$1.00 (Trading at Discount)" icon="arrow-down">
  **What happens:**

  1. trUSD is trading below \$1.00 on the open market (e.g., \$0.98)
  2. Verified participants can buy trUSD cheaply on the open market
  3. They redeem trUSD with the protocol at NAV (\~\$1.00)
  4. This decreases trUSD supply and pushes the price up toward \$1.00
  5. The arbitrageur profits from the difference

  **Result:** Market price is pushed back up toward \$1.00
</Accordion>

### Why This Works

The key insight: **as long as backing is maintained, any price deviation creates a profit opportunity**.

| Factor                    | How It Helps                                                |
| ------------------------- | ----------------------------------------------------------- |
| **Economic Incentive**    | Arbitrageurs profit from correcting deviations              |
| **Self-Correcting**       | Larger deviations = larger profits = faster correction      |
| **Continuous**            | Always active as long as deviations exist                   |
| **Multiple Participants** | Both external arbitrageurs and the protocol can participate |

<Info>
  **Why deviations get corrected:** If trUSD trades at \$0.98 but the backing supports \$1.00, anyone who buys at \$0.98 and redeems at \$1.00 earns a 2% profit. This economic incentive naturally attracts capital to correct the deviation.
</Info>

## Market Price vs NAV

Understanding the difference:

| Concept                   | Definition                                         | Where to Find        |
| ------------------------- | -------------------------------------------------- | -------------------- |
| **Market Price**          | What trUSD trades for on exchanges and DEXs        | DEX pools, exchanges |
| **NAV (Net Asset Value)** | The underlying value of protocol backing per trUSD | Protocol dashboard   |

### Normal Conditions

During normal market conditions:

* Market price stays very close to NAV
* Small deviations are quickly corrected by arbitrageurs
* Typical deviation: \< 0.5%

### During Volatility

During volatile periods, temporary deviations may occur. However:

* **Deviations create opportunity** - The further price moves from NAV, the more profitable arbitrage becomes
* **Self-correcting mechanism** - Economic incentives pull price back toward NAV
* **Protocol participation** - The protocol itself may participate in arbitrage to restore the peg

<Note>
  Temporary deviations from \$1.00 are normal during volatile markets and typically resolve as arbitrageurs capture the profit opportunity.
</Note>

## Supporting Mechanisms

### Liquidity Provision

Deep liquidity in trUSD trading pairs:

* Reduces price impact of trades
* Enables efficient arbitrage
* Minimizes slippage for users

### Protocol Operations

The protocol actively supports peg stability through:

* Working with liquidity providers
* Monitoring market conditions
* Participating in arbitrage when beneficial

### Growing Adoption

As adoption grows:

* More arbitrageurs participate
* Deeper liquidity develops
* Faster peg restoration

## Peg Stability Factors

| Factor                   | Impact on Stability                                  |
| ------------------------ | ---------------------------------------------------- |
| **Backing Health**       | Strong backing = confident arbitrageurs = stable peg |
| **Liquidity Depth**      | Deeper liquidity = more stable peg                   |
| **Arbitrageur Activity** | More participants = faster corrections               |
| **Network Conditions**   | Low gas fees = faster, cheaper arbitrage             |

## What Happens If Price Deviates?

**Short answer:** Profit opportunities emerge that naturally correct the deviation.

| Scenario                   | What Happens                                                   |
| -------------------------- | -------------------------------------------------------------- |
| **trUSD trades at \$0.98** | Arbitrageurs buy cheap trUSD and redeem at NAV for \~2% profit |
| **trUSD trades at \$1.02** | Arbitrageurs mint at NAV and sell for \~2% profit              |
| **Large deviation**        | Larger profit opportunity attracts more capital to correct it  |

The protocol and external participants both benefit from restoring the peg, creating aligned incentives for stability.

## Transparency

Real-time data on trUSD pricing and backing is always available:

| Data                  | Source                   |
| --------------------- | ------------------------ |
| **Market Price**      | DEXs, price aggregators  |
| **NAV**               | Protocol dashboard       |
| **Proof of Reserves** | Accountable attestations |
| **On-Chain Data**     | Public blockchain        |

## Important Note

While the peg mechanism is designed to be robust, trUSD may trade above or below \$1.00 at times. The key assurance is that as long as the protocol maintains its backing, economic incentives work to restore the peg.

See [Backing & Reserves](/solution/backing) to understand how backing is maintained.

## Next Steps

<CardGroup cols={2}>
  <Card title="Backing" icon="vault" href="/solution/backing">
    How trUSD is backed
  </Card>

  <Card title="Reserve Fund" icon="piggy-bank" href="/solution/reserve-fund">
    Additional protection layer
  </Card>

  <Card title="Get Started" icon="rocket" href="/quickstart">
    Start using trUSD
  </Card>

  <Card title="Risks" icon="triangle-exclamation" href="/resources/risks">
    Risk disclosures
  </Card>
</CardGroup>