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Token Peg Arbitrage Meaning

Token peg arbitrage is a trading strategy that exploits price deviations between a pegged token and its target reference value. Arbitrageurs buy undervalued tokens or sell overvalued ones to restore the peg.

This activity plays a stabilizing role in pegged systems such as stablecoins or synthetic assets. Efficient arbitrage depends on liquidity, redemption mechanisms, and transaction costs.

When arbitrage incentives weaken, pegs may become unstable, highlighting the importance of accessible and transparent arbitrage pathways.

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