# The Peg Stability Module

The BIMA Peg Stability Module (PSM) is a mechanism designed to help USBD maintain its $1 USD peg by enabling direct, permissionless swaps between USBD and other stablecoins at a fixed 1:1 rate. 

### What is the PSM?

The Peg Stability Module (PSM) is a smart contract system that allows users to exchange approved stablecoins (like USDC, USDP, GUSD) for USBD and vice versa at a nearly fixed rate. I

It was introduced to reduce the volatility of USBD's price and prevent it from trading significantly above or below $1.

**`Depositing into the PSM (Minting USBD)`** 

`A user deposits an approved collateral stablecoin (e.g. USDC) into the PSM.`

`The PSM mints and returns an equivalent amount of USBD, minus a small fee (e.g., 0.1%).`

`This increases USBD supply, which can help push the USBD price down toward $1 if it's trading above.`

**`Withdrawing from the PSM (Redeeming USBD)`** 

`A user returns USBD to the PSM.`

`The PSM gives back an equivalent amount of the stablecoin (e.g. USDC), minus a fee (if any).`

`This reduces USBD supply, which can help raise the USBD price if it's below` 

### Why it matters

 **1. Soft peg enforcement**: By letting users arbitrage USBD against other stablecoins, the PSM anchors USBD to $1.

 **2. Monetary policy tool**: Bima governance can adjust fees, debt ceilings, and supported assets to control USBD supply and peg pressure.

 **3. Counterparty risk:** Introduces centralized risk (e.g., USDC exposure), but helps stabilize USBD during demand surges.

### **Example**

Let’s say USBD is trading at $1.02 on the open market. 

**A user could:**

 1\. Deposit 1,000 USDC into the PSM.

 2\. Receive \~999 USBD (with a 0.1% fee).

 3\. Sell USBD on the market for $1.02 each.

 4\. Profit from arbitrage and push USBD price closer to $1.