Stable Credits are not hard-pegged to the reference currency. A hard peg would entail a mechanism through which Stable Credits could be swapped against the Reference Currency at a fixed price at any point in time. Such a mechanism is not supported, however the following secures a soft peg, which maintains Stable Credits’ perceived value to that of the Reference Currency:
- 1.Defaulted Stable Credit debt converts into debt due in the Reserve Currency. This drives members to view their negative Stable Credit balance as denominated in the Reserve Currency, and hence price their offerings accordingly.
- 2.Holders of positive Stable Credit balances can convert their holdings into Reserve Currency on a 1:1 basis if and when the Network Debt Account needs to be rectified.
- 3.Since Stable Credits are created when credit is extended and destroyed when debts are repaid, the Stable Credit supply is always equal to the demand exercised on it by outstanding debt. This creates a supply/demand equilibrium which maintains price stability within the network.