Stablecoins and price pegs
Learn what a price peg aims to do and how to recognize a depeg.
A peg is a target
A stablecoin is designed to track a reference value, such as one US dollar. That target is called a peg. A stablecoin with a one-dollar peg aims to trade close to one dollar per token.
Different designs support the target
Some stablecoins are supported by reserves, such as cash and other assets. Others rely on crypto assets held as collateral or on rules that try to adjust supply. Each design has a different way to respond if the market price moves away from the target.
A depeg is a gap from the target
Suppose the fictional River Dollar aims to trade at $1 and its market price drops to $0.92. It is trading below its peg. The price can move again, and the peg alone tells you nothing about when or whether it will return to $1.