Protocols & Platforms
PSM
Peg Stability Module
Module exchanging a stablecoin and accepted backing at a fixed rate
Definition
A Peg Stability Module exchanges a stablecoin for an accepted backing asset at a fixed reference rate, subject to fees, inventory and issuance limits. Maker’s DAI PSM makes USDC-to-DAI conversion and the reverse available through a special collateral vault.
Example
In a hypothetical DAI PSM with a 0.1% entry fee, selling 1,000 USDC yields 999 DAI. If DAI trades at $1.01, selling them produces $1,008.99: $8.99 gross before trading fees and gas.
How it works
Selling backing locks it and creates stablecoin debt in the module; reversing the trade repays debt and releases backing. Arbitrage around the fixed conversion rate helps constrain market deviations while capacity remains.
Risks to Consider
- A frozen or depegged backing token transmits loss into the stablecoin
- Debt ceilings limit issuance and available inventory limits redemption
- Fee changes can remove the arbitrage incentive
Common Questions
Is a PSM an AMM?
No. A PSM uses a configured conversion rate and fees, not a reserve-ratio pricing curve. It still has backing and capacity risk.
