What is Peg?
Let's find out Peg meaning, definition in crypto, what is Peg, and all other detailed facts.
In traditional markets, a peg is the specified price that traders use to set the exchange rate between two assets. A peg is often used to determine the fixed exchange rate for trading two foreign currencies.
The opposite of peg is floating, which refers to currencies that do not have a hard price target and follow monetary policies with more lenience.
Peg can be used as both an economic and political tool as it encourages trade relationships between different nations and helps stabilize macroeconomic activities.
In crypto, a peg is the fixed price that a cryptocurrency token tries to maintain. Pegged tokens are known as stablecoins. Usually, the value of crypto assets is pegged to fiat currency.
Stablecoins like Tether (USDT), USD Coin (USDC), DAI, and FRAX are pegged to the value of $1 per coin. The value of the dollar is considered to be soft-pegged to the consumer price index (CPI).
The pegged value of a stablecoin is maintained by contracting or diluting its total supply. Stablecoin can be minted or burned until it reaches the value of the desired peg. The minted tokens are collaterally backed.
The value of algorithmic stablecoins is maintained automatically by employing smart contracts to reduce or increase the supply of the tokens as needed.