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Pegged cryptocurrency

07.07.21 11:41 AM By ROBERT

Pegged Cryptocurrencies: What are these?

     In a previous blog on stable coins, we mentioned pegged cryptocurrencies. Let's discuss what pegged cryptocurrencies are, and the risks, if any that may be associated.

Pegged Digital Currencies

    Pegged digital currencies are the ones that are linked to the specific value of a bank-issued currency (fiat) or other commodity. Tether is one example. Tether is pegged to the US dollar and is popular in this category of cryptocurrency, one USDT is valued at $1. Before investing in pegged currencies you need to know how it works, what are it's utilities and you must analyze how it would perform in the long run.

    Cryptocurrency developers that are pegging their tokens to a fiat currency must be able to back up their claim, and should hold that backup currency in reserve. If the cryptocurrency fails for any reason, the cryptocurrency tokens that investors are holding must be exchanged for their share of fiat currency.

    Keeping a large fiat reserve is challenging and blockchain developers rely on investors, and other fundraising efforts in order to build the reserve required to back their digital tokens. Moreover, there is no gain from either buying or selling these pegged digital tokens as these will maintain the same fiat value.

Gold-Pegged Cryptocurrency


    Blockchain enthusiasts have always shown a keen interest in gold-backed digital currency. Gold-backed cryptocurrency links one token or coin to a certain amount of gold. In this scenario, gold is held in reserve usually by a third party. The major advantage of this option is the minimum value of the token is equal to a set amount of gold. If the currency becomes popular, the price may exceed that value so this offer protects against the bottom dropping out of the digital currency value.

    The gold is held in reserve and because it is difficult to store large amounts of gold, investors need to be aware of who is holding the gold and where it is safeguarded, because if the gold in reserve disappears for any reason, the value of the token vanishes with it. So a trust factor between investors, developers and the asset retention company safeguarding the gold must be maintained.

USD Pegged Cryptocurrency

    In USD pegged cryptocurrencies, the USD is stored as collateral and these digital currencies face the added risk of storing large amounts of fiat currency. Government regulators are not friendly to companies that are developing blockchain or to the companies that are safeguarding the currency for the blockchain developers. Successful cryptocurrencies, which are pegged by the USD have to be licensed to provide the service and they themselves maintain public records regarding their holdings.

    With USD pegged cryptocurrency, investor assets are stored in digital token rather than fiat currency and both values are the same. If the supply of tokens exceeds the demand for the token, the price will be devalued.

    These digital currencies are always interesting to watch in terms of trends and how the market enthusiasts react. So these stable coins should be no less interesting to those who are learning blockchain.

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