💱 Decentralized Exchange Pegging

Liquidity pools on DEXs can discover their own token prices through trading that occurs on the platform. Whitelisted contracts can take advantage of this functionality and improve the system 👍

When it comes to decentralized exchange pegging in a liquidity pool, 2 different scenarios are possible:

1. The amount of XXX exceeds that of myXXX, which can occur if:

• A user purchases myXXX on a DEX

• Another pooled token (i.e. YYY) reduces in value, forcing arbitrage traders to buy myXXX for YYY and swap it immediately to XXX - the ratio of the myXXX/XXX would then change from 1:1 to a different value

2. The amount of myXXX exceeds that of XXX, which can occur if:

• A myXXX holder swaps to XXX

• Another pooled token (i.e. YYY) increases in value, forcing arbitrage traders to buy myXXX for XXX and swap it immediately to YYY - the ratio of the myXXX/XXX would then change from 1:1 to a different value

3. Same amount ratio near 1:1

• No need to repeg

✳️ The re-pegging process depends heavily on the TVL (Total Value Locked) in the pool - the lower the TVL, the bigger the ratio difference. However, the Wrapper (AMM) will never be affected by the DEX.