# Peg Arbitrage Mechanism

Solomon maintains the price stability of USDv through a two-way arbitrage mechanism. Whenever the market price of USDv diverges from its target peg of $1.00, whitelisted participants can generate an arbitrage profit by either minting or redeeming USDv.

To facilitate seamless redemption, a small buffer (e.g. 0.5%) of protocol reserves is retained by the minting contract, allowing instant redemption for whitelisted users. This buffer is regularly replenished.

## **Arbitrage Examples**

<details>

<summary>When USDv trades below $1 ($0.97) on Meteora</summary>

1. A user purchases 1 USDv for $0.97 USDC on Meteora.
2. The user redeems 1 USDv with Solomon for $1.00 USDC (via protocol reserves).
3. The user pockets $0.03 profit per USDv.

</details>

<details>

<summary>When USDv trades above $1 ($1.03) on Meteora</summary>

1. A user mints 1 USDv for $1.00 USDC via Solomon.
2. The user sells 1 USDv for $1.03 USDC on Meteora.
3. The user earns $0.03 profit per USDv.

</details>


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