How the peg holds
eUSD targets $1.00 through three enforcement layers. None of them depends on an issuer's promise; each is a contract path anyone can call.
| Layer | Rule | Effect on the peg |
|---|---|---|
| Overcollateralization | Every position holds 150% to 200% backing at mint, by risk group | Every eUSD is backed by more than a dollar of collateral |
| Redemption | Burn 1 eUSD, receive exactly $1.00 of a collateral of your choice at the oracle price, no fee | Hard floor below $1.00 |
| Liquidation | Positions below their group's threshold are repaid by anyone, who takes collateral plus a 5% bonus | Removes undercollateralized debt before it threatens solvency |
Below $1.00: the redemption arbitrage
If eUSD trades at $0.98, anyone can buy it, redeem it for $1.00 of SPY or WETH, and sell the collateral. That is a 2% gain per cycle, and it burns eUSD supply until the price returns to $1.00. Redemption needs no permission and runs around the clock on signed off-hours prices, which is what makes the floor credible rather than aspirational.
Above $1.00: the minting arbitrage
If eUSD trades above $1.00, minters can deposit collateral, mint, and sell eUSD at the premium. This ceiling is softer than the floor: at a 150% MCR the theoretical ceiling is about $1.50, dampened in practice by minting arbitrage across four risk groups and fifteen collaterals. Deep eUSD/USDG liquidity on Fables, supported by the LP rebate, keeps everyday trading close to $1.00.
Value-neutral redemption
Redemption never takes value from position owners. A redeemed owner loses exposure on the seized portion of their collateral but keeps eUSD debt relief of exactly equal value, and their collateral ratio strictly improves:
| Position | Before $500 redemption | After |
|---|---|---|
| Collateral | $1,400 | $900 |
| Debt | $1,000 | $500 |
| Ratio | 140% | 180% |
Redemption is forced deleveraging at a fair price, never a penalty. It consumes the riskiest positions first, so it simultaneously defends the peg and de-risks the system.