Peg

A peg is a specified target exchange rate that a cryptocurrency or token aims to maintain relative to another asset, such as a fiat currency, a commodity like gold, or a basket of currencies. In crypto, the term is most commonly associated with stablecoins that try to keep their value close to a reference unit, for example 1 token targeting 1 U.S. dollar.

A peg is not just a label, it is a goal supported by a mechanism. In fiat-backed stablecoins, the issuer typically holds reserves intended to match the circulating supply, so users can treat the token as a digital representation of the reference asset. Crypto-collateralized designs use onchain collateral, often overcollateralized, and rely on smart contracts to manage minting, redemption, and liquidations.

Some systems also use market incentives to hold the peg through arbitrage. If a token trades below its target, traders can buy it cheaply and redeem it at or near the reference value, which can push market price back toward the peg. If it trades above, minting and selling can increase supply and nudge the price down. These processes often depend on reliable price feeds, liquidity, and clear redemption paths.

A peg can weaken or break, often called depegging, when market confidence drops or the stabilizing mechanism cannot absorb selling pressure. Common stress points include insufficient or illiquid reserves, redemption limits, weak collateral quality, oracle failures, and sudden demand shocks. Even when a peg later recovers, temporary deviations can affect traders, DeFi protocols, and anyone using the asset as a unit of account.

Pegs matter in the crypto ecosystem because they provide a bridge between volatile digital assets and more stable reference values, enabling payments, trading pairs, lending, and risk management across decentralized and centralized markets.