A stablecoin is a currency whose value is pegged to a real-world asset, such as a fiat currency.
What Is a Pegged Currency?
A pegged currency or currency pegging is the process of a country attaching, or pegging its exchange rate to another currency, or basket of currencies or another measure of value. As such, pegging is sometimes referred to as a fixed exchange rate. A currency peg is something used in order to provide stability to a currency by attaching its value, which is at a predetermined ratio, to add different and more stable currency.
Pegged currency provides benefits, as it is a fundamental basis for a government that is planning to promote credibility as well as discipline in monetary policies, and this is especially the case of impoverished as well as unstable economies.
Businesses can gain a competitive advantage in the International markets against rivals that face forex risk. Countries that do not adopt currency pegs however are susceptible to foreign influence, and this leads to trade imbalances where it might be difficult to attain an automatic exchange rate adjustment. A minor deviation from the peg could lead to heavy speculative attacks as well.
When we discuss pegged currency in the world of cryptocurrencies, stablecoins are the most recent version of pegging in the crypto world. A stablecoin is a currency whose value is pegged to a real-world asset, such as a fiat currency. There are many projects out there that involve stablecoins., and they perform an important function in an industry that is known for its high volatility when it comes to prices. Stablecoins offer the utility to easily convert crypto coins into FIAT currencies. Stablecoins can also solve liquidity issues on crypto exchanges, and the technology can even create paths for more financial services, such as loans and insurance to be implemented within the world of cryptocurrencies.