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% backing at mint; system-wide backing stays well above 100% | Every eUSD is backed by more than a dollar of eSPY |
| Redemption | Burn 1 eUSD, receive exactly $1.00 of eSPY at the oracle price, no fee | Hard floor below $1.00 |
| Liquidation | Positions below 130% are repaid by keepers who take 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 eSPY, and sell the eSPY. That is a risk-free 2% per cycle, and it burns eUSD supply until the price returns to $1.00. Redemption works 24/7 and needs no permission, 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 eSPY, mint at 150% backing, and sell eUSD at the premium. This ceiling is softer than the floor: at a 150% MCR the theoretical ceiling is ~$1.50, dampened in practice by capital-weighted minting arbitrage. Liquity's equivalent ceiling is tighter only because its MCR is 110%. A future USDG peg-stability module for eUSD can close the gap from both sides.
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.