Pegged refers to an asset, especially in cryptocurrency, that maintains its value by being directly tied to another asset, such as fiat currency or gold, to achieve stability in its valuation.

Pegged Meaning in the Crypto Glossary

The term pegged refers to the attachment of one asset’s value to another, aiming for value stability. This concept is prevalent in both traditional finance and the dynamic world of cryptocurrencies.

Understanding Pegging in Traditional Finance

Traditionally, countries may link their currency’s exchange rate to the value of another country’s currency. This practice stabilizes exchange rates and facilitates international trade.

The Crypto Twist: Pegging in Digital Assets

In the crypto realm, pegging often involves tying a coin’s market value to another asset. This could be another cryptocurrency or a real-world asset like gold or fiat currency. The objective? To shield a crypto asset from the wild market swings, maintaining a semblance of stability.

For a cryptocurrency to be pegged, the entity behind it must hold a reserve of the asset to which it is pegged. This reserve backs the crypto’s value, ensuring users can exchange it for its equivalent in the pegged asset.

Stablecoins: The Poster Child for Pegging

Stablecoins are the most prominent example of pegged cryptocurrencies. They are typically tied to less volatile assets like fiat currencies at a fixed ratio, offering an oasis of stability in the tumultuous crypto market.

Types of Pegged Cryptocurrencies

Should the value of a pegged cryptocurrency stray from its target ratio, it is said to have depegged, potentially leading to instability and uncertainty among its holders.