Pegged Cryptocurrency

A pegged cryptocurrency is a digital currency whose value is linked to the value of another medium of exchange, such as a bank-issued currency or gold. Once an exchange rate is established between the two, the cryptocurrency’s value fluctuates in the same direction and to the same degree as its pegged medium. Since cryptocurrencies are known to heavily fluctuate in value, users often peg their cryptocurrencies to other currencies to preserve their financial worth. This helps decrease the overall risk of monetary loss on their initial investment. For instance, Tether tokens (a type of stablecoin) are pegged to the U.S. dollar. This means that an individual Tether token always holds the value of $1. On the other hand, when a cryptocurrency is pegged to a specific type of asset such as gold, its value is directly affected by the value of the underlying asset.