Peg

A peg is a mechanism where the value of one asset is tied (synchronized) to the value of another asset, typically at a 1:1 ratio. It is most commonly used in stablecoins, which are pegged to fiat currencies like the US dollar (e.g., USDT, USDC) or other assets such as gold. This peg stabilizes the cryptocurrency’s value and reduces volatility, making it especially useful for transactions and decentralized finance (DeFi).

A peg can be maintained in different ways, such as through actual reserves (as seen in fiat-backed stablecoins) or algorithmic mechanisms that adjust token supply. However, peg systems are not foolproof—under extreme market conditions, they can break, leading to depegging, where the asset loses its fixed value, as seen in the collapse of the TerraUSD (UST) stablecoin.