rstETH peg maintenance mechanism

The rstETH token will maintain a peg of 1:1 with stETH. This will be ensured by the token’s hard peg mechanism and through arbitrage opportunities.

The hard peg mechanism will be ensured by the token being mintable and redeemable on a 1:1 basis with stETH. There will be no minting or redeeming fees.

Should the price be above 1 rstETH/stETH, then market participants are incentivized to mint rstETH and sell it to stETH at a higher price.

Similarly, should the price be below 1 rstETH/stETH, then market particiants are incentivized to buy discounted rstETH and redeem it for 1 stETH.

Initially, rstETH/stETH liquidity will be provided on Curve. Why Curve?

Examples:

rstETH>stETH

The current price of 1 rstETH is 1.05 stETH.

Arbitrageurs can deposit 1 stETH in Restake Finance, get 1 rstETH and sell it for 1.05 stETH, hence making a 0.05 stETH profit, or 5% on their initial investment.

rstETH<stETH

The current price of 1 rstETH is 0.95 stETH.

Arbitrageurs can buy 1 rstETH for 0.95 stETH, and instantly redeem it for 1 stETH through the decentralised smart contract. They will make a profit of 0.05 stETH, or 5.26% on their initial investment.