Go back

Stablecoins

Why USDT Doesn’t Fall Below $1: The Mechanisms Behind Stability

Stablecoins have become the “gateway” for traditional investors entering the crypto market. Millions of people trust them as a safe store of value before moving into more volatile assets.

And yet, despite multiple cases of stablecoin “de-pegs,” few actually stop to ask: how do issuers maintain the $1 peg?

Broadly, there are three main mechanisms that large issuers use to stabilize their coins.

Open Market Operations (Used by Tether and Circle)

This mechanism works similarly to how central banks manage money supply and inflation. Issuers like Tether (USDT) or Circle (USDC) mint or burn tokens depending on whether the stablecoin trades above or below $1.

  • If price > $1 (e.g., $1.03):

    • Issuer mints new tokens and sells them at $1.03

    • The proceeds go into reserves

    • Supply increases → price naturally falls back toward $1

  • If price < $1 (e.g., $0.97):

    • Issuer uses reserves to buy tokens at $0.97

    • These tokens are burned and removed from circulation

    • Supply decreases → price rises back toward $1

Key risk: Limited reserves. If the price stays below $1 for too long, an issuer can run out of funds to support the peg.

Arbitrage via Minting and Redemption (Used by FRAX and USDD)

Here, anyone can mint or burn stablecoins in exchange for underlying collateral at a fixed $1 rate. This creates arbitrage opportunities that automatically restore the peg.

  • If price > $1 (e.g., $1.03):

    • A trader mints $10,000 worth of stablecoins at $1 each

    • Sells them on the market for $1.03, earning $10,300

    • Profit = $300

    • Meanwhile, the increased supply pushes the price back toward $1

This self-correcting mechanism works on pure market logic: the more supply, the lower the price.

Borrower Incentives (Used by DAI)

For collateralized stablecoins like DAI, the peg is supported by borrowers’ incentives.

  • If price < $1 (e.g., $0.97):

    • A borrower who owes 10,000 DAI can now buy them on the market for $9,700 instead of $10,000

    • They repay the debt and reclaim their collateral

    • The act of buying DAI increases demand, pushing the price back toward $1

This model combines debt markets with stablecoin mechanics, creating economic pressure to restore the peg.

Why This Matters

For professional DeFi participants, these mechanisms aren’t just technical details — they’re tools for liquidity management and strategic positioning. Understanding them helps traders, institutions, and protocols adapt to market shifts.

And for everyday users? This is where BFinance steps in. While issuers like Tether and Circle keep stablecoins steady, BFinance makes them useful:

• Instantly top up USDT or USDC right inside Telegram

• Spend them anywhere via Apple Pay, Google Pay, or Samsung Pay

• Use them for eSIMs, flights, hotels, or even daily shopping

👉Stablecoins solve stability. BFinance solves utility.

Open app