> For the complete documentation index, see [llms.txt](https://octolsd.gitbook.io/octolsd-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://octolsd.gitbook.io/octolsd-docs/project-introduction/distribution/usdlsdd/pegging-mechanism.md).

# Pegging mechanism

$LSDD is pegged to the price of USD by redemption and liquidation. And the pegging process is driven by arbitrage opportunities.

The ability to redeem $LSDD for ETH at face value (1 $LSDD for $1 of ETH) and the minimum collateral ratio of 150% create a price floor.

When $LSDD price falls below $1: 

* Buy 1 $LSDD at the price of less than $1 
* Exchange 1 $LSDD for $1 worth of ETH through the redemption
* Arbitrage opportunities will incentivize buying demand for $LSDD, thus bringing the price of $LSDD back to $1.

When $LSDD price rises above $1: 

* LSDD protocol will automatically convert more LSD interest(ETH or LSD) into $LSDD
  * The conversion rate can also be adjusted by OctoDAO.
* More $LSDD supply will bring the price of $LSDD back to $1

In addition to the above two main pegging mechanisms, OctoDAO can also adjust the supply and demand of $LSDD by changing other rates in the LSDD protocol, to make $LSDD more stable.


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