Scenarios of Downward Depeg

Encourages users to repay. Since the debt is denominated in BUCK, it can be understood that the debt has become cheaper. This cheap state of BUCK is likely temporary, which will decrease the total supply of BUCK, thereby appreciating BUCK against the dollar.

Additionally, when BUCK < 1, for example, BUCK = 0.99 U, arbitrageurs can buy 100 BUCK with 99 USD and use it to redeem collateral worth 100 USD, earning the difference (1 USD). Of course, transaction fees must be considered in actual arbitrage activities.

The behavior above can also be replaced by the PSM function, which is more intuitive and straightforward, which is why it's called the Peg Stability Module.

This arbitrage activity, understood as more people converting BUCK into collateral, reduces the circulating supply of BUCK, raising the price of BUCK. It could also be due to the need to buy BUCK for arbitrage, thus increasing demand for BUCK.