What Is Pegged Cryptocurrency? - How to Use Them

The world of crypto is highly volatile. That’s why pegged coins play a special role there - they provide crypto with so much-needed stability. Stablecoins are called so because their price is stable in relation to another asset. This asset can be a specific fiat currency (USD, EUR), precious metal (gold), another crypto (BTC), or any other tangible or intangible asset.

What Is Pegging?

So, pegging is the attachment of a crypto price to the price of another asset. This asset can be anything but the most common cases are USD, EUR, another valuable fiat currency, or any other asset such as gold, grain, or whatever. If the coin’s price equals the price of the asset, it is pegged.

For example, USDT and BUSD are pegged to USD. Their price is 1 USD.

PAXG is pegged to gold, one coin price equals the price of one troy ounce of a 400-ounce gold bar.

What Is De-Pegging?

In critical situations, a pegged coin may lose its correlation to an asset. Its price becomes different from the price of the peg asset. It is called depegging.

How Is Pegging Achieved in a Stablecoin?

Pegging can be achieved in two ways:

reserving or backing the coin: in this case, each crypto coin is backed by a real asset. So, if Tether has 1,000,000 USDT in circulation, the company shall have at least $1,000,000 in a special account to back the released crypto coins.
algorithmically: such coins are not backed by any real asset. A smart contract uses a special algorithm that regulates the coin issuance to keep its price stable. For now, the most popular algorithmic stablecoin was UST which collapsed within some hours from 1 USD to almost 0.

Even though algorithmic coins have great potential in the future when the technology develops better, for now, they have lost the trust of investors.

Popular Pegged Cryptocurrencies

At the moment, the most popular pegged cryptocurrencies are the following.

US Dollar Tether (USDT)

USDT is one of the most popular stablecoins. It is issued by a Hong Kong-based company Tether and its price is pegged to the US dollar. USDT is a coin backed by commercial papers, fiduciary deposits, cash, reserve repo notes, and treasury bills. It has been one of the most stable projects for now.

TrueUSD (TUSD)

TrueUSD or TUSD is another popular stablecoin whose price is pegged to the US dollar. This coin is backed 1:1 by USD and it is administered by TrustToken, a platform for tokenizing real-world assets.

TUSD is fully licensed and regulated by the U.S. Accounting Firm Cohen & Company which performs regular audits to ensure 100% project transparency.

Steem Backed Dollar (SBD)

SBD is also pegged to USD but the ratio is 1:2 which means that 1 SBD equals 2 USD.

Binance USD (BUSD)

Binance USD is a stablecoin pegged to USD. This coin was developed by Binance. The coin is approved by the New York State Department of Financial Services. The monthly audit report on the asset is released regularly and is available to the public on the official Binance website.

Conclusions

Pegged crypto forms an important part of the crypto market. There are a lot of pegged coins but not all of them are equally reliable and thus, can be used to protect your crypto assets from excessive volatility. Therefore, always do your own research before buying any stablecoin.

FAQ

Why is crypto pegged to the dollar?

Some coins are pegged to the dollar to ensure their price is constant.

What does pegging mean in crypto?

Pegging means attachment to the price of another asset.

Is Tether pegged to the dollar?

Yes, Tether is pegged to and backed by USD.

How do pegged coins work?

Pegged coins are backed up by the same value of the asset to which they are pegged. So, if a coin is pegged to USD, it shall be backed by USD or something else of the value that equals the value of the issued coins measured in US dollars.

Which crypto is pegged to gold?

PAXG is pegged to gold.

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