# PUST Price Stability

### How does PUST closely follow the price of USD? <a href="#how-does-lusd-closely-follow-the-price-of-usd" id="how-does-lusd-closely-follow-the-price-of-usd"></a>

#### Hard Peg Mechanism

The ability to redeem PUST for collateral at face value (i.e. 1 PUST for $1 of collateral) and to mint PUST at a `103%` against USDCcreate a price floor and price ceiling (respectively) through arbitrage opportunities. We call these "hard peg mechanism" since they are based on direct processes.

#### Soft Peg Mechanism

PUST also benefits from less direct mechanisms for USD parity — called "soft peg mechanism". As redemptions increase (implying PUST is below $1), so too does the `baseRate` — making borrowing less attractive which keeps new PUST from hitting the market and driving the price below $1. Another of these mechanisms is parity as a Schelling point. Since Palm Finance treats PUST as being equal to USD, parity between the two is an implied equilibrium state of the protocol.
