> For the complete documentation index, see [llms.txt](https://level-money.gitbook.io/level-documentation/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://level-money.gitbook.io/level-documentation/how-it-works/lvlusd/peg-stability.md).

# Peg Stability

## **lvlUSD Backing**

As described in the previous section, lvlUSD can only be minted with USDC or USDT. Every lvlUSD in circulation is fully collateralized by an equivalent amount of USDC or USDT, which are deployed in lending protocols like Aave to generate yield. The receipt tokens from these protocols (e.g. aUSDC or aUSDT from Aave) are then wrapped to become yield-accruing assets.

## **lvlUSD Peg Arbitrage**

Although lvlUSD is fully collateralized, strong buying or selling pressure in the secondary market may cause the price of lvlUSD to temporarily deviate from $1. Users can capitalize on such price dislocations through a straightforward arbitrage strategy:

* If lvlUSD trades above $1, users can mint lvlUSD using USDC or USDT and sell it in the secondary market for a profit.
* If lvlUSD trades below $1, whitelisted users can buy it at a discount in the secondary market and redeem it for USDC or USDT.

## **Examples**

**Scenario 1: lvlUSD trades below $1 on Curve**

If lvlUSD is priced at $0.995 on Curve, an arbitrageur could:

1. Buy 1 lvlUSD for $0.995 USDC on Curve.
2. Redeem 1 lvlUSD for $1.00 USDC via the protocol.
3. Profit $0.005 per lvlUSD.

**Scenario 2: lvlUSD trades above $1 on Curve**

If lvlUSD is priced at $1.005 on Curve, an arbitrageur could:

1. Mint lvlUSD with USDC via the protocol at $1.00.
2. Sell lvlUSD in the Curve pool for $1.005 USDC.
3. Profit $0.005 per lvlUSD.

Users can profit from discrepancies between lvlUSD’s protocol mint/redeem price and its secondary market price, creating a natural incentive for lvlUSD's peg to be maintained. This currently applies to the [lvlUSD/USDC AMM pool](https://curve.fi/dex/ethereum/pools/factory-stable-ng-278/deposit/) on Curve.


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