What Is the Meaning of Peg

A price peg is a fixed or pre-determined price at which two assets are traded or exchanged for each other. Pegs are different from floating prices determined by market factors and change regularly within a short time. Pegs make it easier to value assets, store value, and protect investors from market volatility. This concept is useful in the global currency market, where traders can exchange a currency for the base at the peg rate.

Governments or central banks set pegged currency rates, and they are used to promote trade and reduce risk. The US dollar is the world’s most pegged currency having 14 countries that have pegged their currencies to the US dollar. But price pegs are not only found in fiat currencies but also cryptocurrencies.s

What is peg in crypto?

When cryptocurrency users define pegging or talk about the meaning of pegs, they usually refer to several cryptocurrencies called stablecoins that are pegged to the fiat value of currencies such as the USD and the GBP and commodities such as gold. There are different types of stablecoins, from collateralized stablecoins to algorithm-backed stablecoins. Some examples are BUSD, USDT, USDC, DAI, and PAXG. dollar-backed stablecoins are pegged to the USD and worth $1.

The peg is controlled by increasing or reducing supply to regulate the price at $1. This is achieved through different mechanisms, depending on the type of stablecoin. Collateralized stablecoins are minted or burned to regulate price, with an equivalent amount deposited or taken out of deposit accordingly. Commodity-backed stablecoins are also minted or burned. However, algorithm-backed stablecoins are controlled using computer algorithms that use smart contracts to increase or reduce the supply of tokens based on prevailing market conditions. The supply of any cryptocurrency is crucial to its peg.

When defining “what is a peg” only cryptocurrencies tied to a particular value are categorized as pegged cryptocurrencies.

What is depeg meaning in crypto?

Just as cryptocurrencies peg in crypto, it is possible to depeg a stablecoin. Depegging means removing the peg on a currency or cryptocurrency and leaving the price to free float in the market. Depegging could be shifting the peg of currency from one particular currency to a basket of currencies, or simply allowing the market to decide its price in relation to its value, supply, and demand.

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