PegNet is a groundbreaking stablecoin network that creates the foundation for decentralized finance. It is truly novel technology that allows for decentralized, digital versions of cryptocurrency, fiat currency, precious metals, and other assets that are called “pegged assets” or “pAssets” for short. The native token of PegNet is PEG and it is rewarded to Proof of Work (PoW) miners who act as decentralized oracles. These miners subscribe to various external market APIs and publish those results to PegNet.
On PegNet, the price of pAssets will always mirror their reference asset as it’s programmed that way. So if the data from external APIs the miners publish say Bitcoin is worth $10,000, then on PegNet pBitcoin will be worth $10,000. And if Gold is worth $1,000, then pGold on PegNet will be worth $1,000. In that case, if you have 10 pGold, you can convert it inside of PegNet to one pBitcoin with no middleman, counter party, price slippage, collateral, or risk of forced liquidation. You pay just 1/10th of a cent for the conversion. Prices will always be stable within PegNet. However, once pAssets start to be listed on exchanges, then their price outside of PegNet will vary. PegNet was designed to employ arbitrage as the stability mechanism on exchanges. Before I provide an example, it’s important to note that PEG is not a stablecoin like other pAssets. It is a free-floating, market priced token like most tokens out there. In addition, arbitrage is the practice of taking advantage of a price difference between two or more markets.
How Arbitrage Will Stabilize PegNet Assets
Let’s say Bitcoin is worth $10,000 and thus on PegNet, pBitcoin is worth $10,000. On exchange X, pBitcoin (pBTC) has a pBTC/BTC pair and is reasonably illiquid (meaning there’s not that many buyers and sellers). PEG has a PEG/BTC pair that is highly liquid (meaning there are plenty of buyers and sellers). For simplicity, I’ll depict prices in $USD. On the exchange, pBitcoin is for sale at the following prices:
Seeing this, my arbitrage bot purchase the two pBitcoin below $10,000 for a total of $19,700 worth of BTC. That stabilizes the price of pBitcoin on the exchange somewhere between $9,950 and $10,000. At the same time, my bot sells $19,700 worth of PEG for BTC and because the market is liquid, there’s little slippage. I send that $19,700 worth of pBitcoin to my PegNet address where it’s worth $20,000 and convert it to $20,000 worth of PEG. My bot then sends that $19,700 worth of PEG back to the exchange so it’s ready for the next arbitrage opportunity and I pocket $300 in profit (minus the normal fees) for very little work. Rinse and repeat this hundreds of times to stabilize PegNet assets across exchanges, and you have a great money making opportunity.
PEG is the native token of PegNet that is awarded to the decentralized Oracles (miners). It provides price stability to pAssets by guaranteeing the ability to convert to PEG at a set price. If you have $100 in pUSD and want to sell it but it is only trading for $0.90 a piece on exchanges, you can instead convert your pUSD to PEG on PegNet. You could then use your PEG to buy that pUSD on an exchange and repeat the process. This would force up the price of pUSD until the arbitrage opportunity no longer exists.
PEG is unique because it is native to the network and is not trying to track a real asset equivalent. If pUSD is undervalued relative to USD, then every other pAsset will probably be undervalued by an equal amount relative to their real counterpart, as the risk carried by PegNet is the same across every pAsset. PEG cannot be under or over valued as there is no real asset to compare it to, so its price on the network is always correct (apart from the small latency you get from the PEG oracle). So only with PEG can you be sure that you will get more or less the same price on exchanges (assuming decent liquidity) that you get on the network.
In short, PegNet assets on exchanges will be stabilized by profit incentive. There does need to be at least one liquid asset on exchanges that can be used as an offramp. If that exists, then the system should function properly and is positioned to change the nature of finance.