> For the complete documentation index, see [llms.txt](https://docs.essencefinance.io/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.essencefinance.io/protocol/peg-stabilty.md).

# Peg Stabilty

CHI's peg stability is achieved through the use of arbitrage, allowing for an extremely tight peg around $1. This is done through direct redeemability, meaning CHI can always be minted or redeemed for $1 of collateral. This mechanism ensures that CHI's price stays close to its target of $1, with any deviation from this price creating an opportunity for arbitrage.

> For example, if CHI is trading on secondary markets above $1, then an arbitrageur can mint CHI for $1 and sell it on the secondary market for a profit. Conversely, if CHI is trading below $1, then an arbitrageur can buy the cheap CHI and redeem it for $1 of collateral, making a profit in the process. This arbitrage mechanism helps to keep CHI's price anchored to its target of $1.

Essence can also deploy PCV (Protocol Controlled Value) to secondary markets to provide liquidity for CHI, allowing extremely deep liquidity and reinforcing CHI's peg. 

### Peg Stability Module 

Our Peg Stability Module (PSM) at launch will be using USDC to ensure a smooth launch. We will gradually transition over to use an ETH PSM which is currently unheard of in the stablecoin space and would be a revolutionary step for decentralized stablecoins. 

<figure><img src="https://4283470523-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FD0w4CbdfgJSQ1R3M9z4f%2Fuploads%2Fo6gDktK4zQnT8ipEOPNQ%2Fchi%20psm%20diagram.png?alt=media&amp;token=758467fa-894e-40aa-bca1-50ada73cb8d0" alt=""><figcaption></figcaption></figure>