What would happen if a feature was added to the protocol that:
if swap price > oracle price, automatically mints m-assets and distributes them to liquidity providers, proportionally to their stake
if swap price < oracle price, automatically burns a fraction of the m-assets of the liquidity providers
(by mint and burn, I create tokens out of thin air and burning them for nothing)
So all current features would remain same, but the protocol would have also the role of a central bank, aiming at aligning oracle and swap prices.
It seems to me that this could give an essentially exact peg, but there might be side effects (transfer of wealth for example) depending on the precise implementation of the idea.