A stablecoin backed by a currency or asset is called a fiat-backed or an asset-backed stablecoin. Stablecoins using this pegging method are known as ‘centralized stablecoins’ because their value is secured in a centrally managed vault.įor example, Circle, the issuing entity behind USDC, is supposed to keep one US dollar in their vault for every USDC token sold. How Are Currency Pegs Implemented?ĭepending on the type of stablecoin, a digital currency can currently be pegged using one of the following methods: Maintaining Reserves one unit of either stablecoincan be exchanged for $1.Ī different example would be the PAX Gold cryptocurrency pegged to one troy ounce of a 400-ounce London Gold Delivery (gold bar). For example, both USDC and USDT are US dollar-pegged, i.e.
It’s done so that the pegged asset mimics the price movements of the other asset or currency. In cryptocurrency, pegging refers to anchoring the underlying asset’s value to an external asset, usually in a 1:1 ratio. A good example is the Hong Kong Dollar’s (HKD) currency peg with the US Dollar (USD) in a ~7/8:1 ratio.Įssentially, this means that the exchange rate between two currencies remains the same, with monetary authorities adjusting policies to ensure this arrangement remains in place. Get The Latest News And Updates From Phemex! SubscribeĬurrency pegs refer to when a currency’s exchange rate is fixed to match another currency or basket of assets.
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