> For the complete documentation index, see [llms.txt](https://docs.btcd.fi/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.btcd.fi/token-overviews-1/btcd/peg-stability-mechanism.md).

# Peg Stability Mechanism

BTCD maintains its peg via automated, programmatic delta-neutral hedges on derivatives venues. Each time BTCD is minted or redeemed, the protocol:

1. Opens an offsetting perpetual futures short position equal in notional value to the backing BTC and/or USD.
2. Transfers the BTC collateral into a secure off-exchange settlement layer.
3. Delegates, but never transfers custody of, the collateral to exchanges as margin.

By matching hedge size to collateral value, price movements in BTC are largely offset by gains or losses in the perpetual position, keeping BTCD’s on-chain USD value stable without employing material leverage.

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