One of the questions that continues to float around here is, "How does the PegNet support the FCT price".

In answering a question on the PegNet discord, it occurred to me that we have not realized and thought out the impact of liquidity of the PegNet when it differs from the Liquidity of FCT (and PEG) on Exchanges.

Liquidity arbitrage works this way: A user can sell pXXX assets (where pXXX is any asset with good liquidity on the PegNet, like pUSD or pGold)If pXXX has good liquidity, then there will not be much price slippage.
if FCT does not have good liquidity, buying FCT will significantly move up the price of FCT Conversion of FCT to pFCT then conversion to pXXX will all be at the higher FCT price.

pXXX can then be sold to buy FCT to convert to pFCT then to pXXX; Rinse and repeat.

This continues until the liquidity of pXXX matches the liquidity of FCT, so that there is no profit. The same goes for PEG.

pXXX can be sold to buy PEG then convert to pXXX; Rinse and repeat

If either path is pushed past the liquidity of pXXX, then pXXX is under valued, and the reverse cycle makes money, where PEG is used to buy pXXX to convert to PEG to buy pXXX to convert to PEG.

The liquidity of PEG or FCT can be greater than the liquidity of the pXXX tokens, but it cannot be lower than the pXXX tokens.

The reason the pegged assets support PEG and FCT is that the target on the exchange can go up in price (the PEG and FCT) and the PegNet with respect it. The reverse is not true, if the target is pXXX no matter how high the trader pushes the price of pXXX up, the PegNet only respects the reference value. Liquidity arbitrage is a one way opportunity: It supports the liquidity of PEG and FCT (supporting their price), but does nothing to oppose an increase of liquidity of FCT and PEG (and thus any increase of the PEG and FCT price).

We have worried about PEG being dumped to buy FCT to be converted to pFCT then to PEG then dumped to buy FCT over and over. Liquidity arbitrage opposes a PEG dump to FCT to pFCT to PEG dump cycle, because dumping PEG also lowers its liquidity, so that relatively small buys push the PEG price back up.

We see this with flash crashes and spikes in the normal market; they somewhat repair themselves anyway.

In the PegNet, the repair of the spike is really powerful because the repair occurs in Exchange time without delay, then the conversion of FCT to pFCT gets to leverage the greater (repaired) price. So anyone trying this burn attack of FCT on PEG actually creates an opposing arbitrage (of liquidity) move of the market against the dump of either PEG or FCT.

A solid price of PEG and FCT supports the trust in the entire PegNet and the liquidity of the assets in the PegNet.