Open Market Peg Arbitrage

Overview

$UTY maintains its market value through arbitrage, as traders exploit price discrepancies between the market price of $UTY and its relatively fixed mint/redeem value. This process naturally keeps $UTY closely anchored to $1 even amid fluctuating market conditions.

Minting and Redemption via Issuance Smart Contract

Authorized users can mint or redeem $UTY through the issuance smart contract at a fixed rate of approximately $1 per unit. While secondary market prices may fluctuate, the ability to mint and redeem at a stable value creates arbitrage opportunities that help maintain price stability.

Price Below $1: Arbitrage via Redemption

If $UTY trades below $1 on decentralized exchanges (DEXs), arbitrageurs can profit by:

1. Purchasing $UTY at a discount on the open market.

2. Redeeming it via the issuance smart contract for approximately $1 in value.

3. Capturing the price difference as profit while reducing the circulating supply of $UTY.

This redemption process exerts upward pressure on the secondary market price, nudging it back toward the $1 peg.

Price Above $1: Arbitrage via Minting

If $UTY trades above $1, arbitrageurs can:

1. Mint new $UTY through the issuance smart contract at the fixed $1 rate.

2. Sell the newly minted $UTY on the open market for a premium.

3. Capture the price difference as profit while increasing the circulating supply of $UTY.

This additional supply increases selling pressure, bringing the secondary market price back toward $1.