What is “peg” in cryptocurrency context?

Cryptocurrency Basics

“Pegging” in the context of cryptocurrency refers to fixing the value of a crypto asset to another asset or index. This is commonly seen with stablecoins, which are cryptocurrencies designed to have stable values by being pegged to more stable assets like the US dollar or gold. The peg helps make stablecoins less volatile, making them more suitable for everyday transactions and as a store of value.

For example, if one stablecoin is pegged to the US dollar at a 1:1 ratio, the value of that coin is intended to always be equivalent to one dollar. To maintain this peg, the issuer of the stablecoin typically intervenes in the market to adjust supply or manage reserves to back the stablecoin.

There are different types of peg systems, each using different mechanisms to maintain a fixed exchange rate. These can include fully collateralized pegs, crypto-collateralized pegs, and algorithmic pegs.

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