The stability of a stablecoin's price relies on an effective market mechanism. The PSM (Peg Stability Module) creates an "arbitrage corridor" by allowing users to exchange between USDD and USDC/USDT at a 1:1 ratio — when the price deviates from $1, savvy traders will enter the market to arbitrage, automatically bringing the price back to the peg level.

This design is especially effective within the Ethereum and its DEX ecosystem. Whenever the market price of USDD fluctuates, the arbitrage mechanism operates like an automatic stabilizer, continuously correcting market supply and demand imbalances. In practice, the PSM module has become a solid foundation for maintaining USDD's $1 target price — it is not a passive defense, but a clever design that incentivizes market participants to actively participate in price stabilization through economic incentives. This is precisely the ingenuity of modern stablecoin design.