What does 'pegged' mean in the context of cryptocurrencies?

1 answers

• Dec 18, 2021 · 3 years ago
  Pegging in the context of cryptocurrencies refers to the practice of fixing the value of a cryptocurrency to another asset, such as a fiat currency or a precious metal. This is often done to provide stability and reduce the volatility that is inherent in many cryptocurrencies. When a cryptocurrency is pegged, its value is directly linked to the value of the pegged asset. For example, if a cryptocurrency is pegged to the price of gold, its value will always be equivalent to a certain amount of gold. This can be achieved through various mechanisms, such as using smart contracts or maintaining a reserve of the pegged asset. The purpose of pegging is to create a more stable and predictable value for the cryptocurrency, making it more suitable for use as a medium of exchange and a store of value. However, it also means that the value of the pegged cryptocurrency will not be able to freely fluctuate based on market demand and supply, which can limit its potential for speculative gains.
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