⚖️ Peg Stability & Arbitrage Mechanism

Risk free arbitrage

chUSD is designed to maintain a soft peg to the U.S. dollar, supported by real-world asset (RWA) collateral and on-chain mint/redeem mechanisms. To incentivize price stability across markets, chUSD supports cross-market arbitrage by allowing approved participants to profit from short-term price dislocations.

🔁 Cross-Market Arbitrage

When the secondary market price of chUSD diverges from its target peg (i.e. $1.00), whitelisted users can execute arbitrage via the mint & redeem contracts.

This helps anchor the peg and ensures that chUSD trades closely in line with its backing value.

Example A – chUSD trades below peg:

  • Buy chUSD on Curve or Uniswap for $0.95

  • Redeem chUSD via Chateau for $1.00 worth of backing assets

  • Realize a $0.05 profit per token

Example B – chUSD trades above peg:

  • Mint chUSD from Chateau at $1.00 using stablecoins (e.g., USDC)

  • Sell chUSD on a DEX or CEX for $1.03

  • Capture the spread as profit

🛠️ Trade Access & Infrastructure

  • Only whitelisted participants may directly access the mint/redeem contracts

  • chUSD is backed by RWAs, with a portion of reserves held in on-chain stablecoins to enable real-time redemption

  • Redemption liquidity is replenished systematically from Chateau’s treasury, which maintains a buffer (e.g. 4% of assets) in stable, liquid form across qualified custodians

🧮 What Holds the Peg

  • Asset-backed stability: chUSD is backed by private credit and tokenized SPVs, not algorithmic mechanisms

  • Smart contract-based arbitrage: ensures that dislocations can be traded away when spreads appear

  • Minimal correlation to volatile crypto assets: since underlying value is tied to off-chain yield, short-term volatility on DEXes doesn’t impair long-term peg confidence

PreviousHow Liquid is it?Next⚠️ Risks & Disclosures

Last updated

Was this helpful?