lUSD & the peg corridor
lUSD is designed to trade near one dollar. It is not a hard peg, and this page explains exactly what holds it, how strongly, and where the mechanism's edges are. We'd rather you learn this here than from a price chart.
What lUSD is backed by
Supply-side, the accounting is exact: lUSD.totalSupply() always equals the sum of debtAmount across unredeemed receipts — minting and burning move only through deposits and redemptions. Every unit is backed by locked principal worth at least 1 / maxRatio of it (at the 80% cap: ≥ 125%), plus whatever yield that principal has accrued.
But backing is not the same as a peg. lUSD has no direct "give me $1" redemption — it redeems only through receipts, by burning debt. So its market price is held by arbitrage, not by a redemption window.
The floor: redemption arbitrage
Suppose lUSD trades at 0.97 USDC. Anyone holding a receipt (or willing to buy one) can:
- buy lUSD at 0.97,
- burn it against a receipt's debt at face value,
- unlock USDC at par.
Profit = the discount × the debt retired. This works at any scale up to the total outstanding debt, throttled only by the T+2 delay (the arbitrageur carries the position for two days). Result: a hard-ish floor slightly below par, priced by two days of carry risk.
The floor has a condition, and it's the most important sentence on this page:
The redemption arb is only profitable while the vault is whole. If the yield venue ever lost more than the mint buffer — over 20% at the 80% ratio — redemption would return less than the debt costs to buy, and the floor would evaporate until the venue recovered.
This is why the 80% cap matters beyond leverage math: the 20% buffer is the peg floor's armor against venue drawdowns. (It is also why the cap deserves to be code, not config — tracked in our audit as I-06.)
The ceiling: minting carry
Suppose lUSD trades at 1.03 USDC. Anyone can deposit 1,000 USDC, mint 800 lUSD, and sell it for 824 USDC — but they've locked 1,000 for T+2 to free 800. The premium persists until that carry looks attractive to loopers, so the ceiling is soft: minting pressure leans on it rather than snapping it back.
The honest summary
lUSD's price lives in a corridor: a firm floor priced by redemption carry (conditional on the venue buffer), and a soft ceiling priced by minting carry. Inside the corridor, price is supply and demand — including the demand loom's own incentives create for holding and LPing lUSD.
If you need an asset that is always exactly $1.00, hold the stablecoin. If you want the liquidity of your deposit while it earns, lUSD is that — with the peg mechanics stated above, not assumed.