What is a Pegged Cryptocurrency?

Cryptocurrency enthusiasts are always at the mercy of price volatility. This is especially true for altcoins right now, although Bitcoin is also going through some violent swings of its own. Some projects have even tried to create a pegged cryptocurrency, although efforts have been mostly unsuccessful as well. There is a good reason as to why that is, though.

Pegged Cryptocurrencies Are Not Easy To Pull Off

As the name somewhat suggests, a pegged cryptocurrency indicates a coin, token, or asset issued on a blockchain that is linked to a specific value of a bank-issued currency. In most cases, these coins would be pegged to the US Dollar, as it is the one currency that dominates the entire financial sector. Tether has made some waves in this regard, as their USDT token is pegged to US$1 at all times.

It is vital to understand one cannot simply claim a coin or token is linked to the value of 1 US Dollar without enforcing this fact, though. To be more specific, the cryptocurrency project owners will need to have the specific amount of US Dollars in reserves at all times to guarantee the pegged value of their cryptocurrency. This becomes even more important when said cryptocurrency can be openly traded across multiple exchanges.

Holding vast amounts of US Dollars in reserve is one of the major challenges for pegged cryptocurrencies, though. There are ways to achieve this goal, either through investors or fundraising. The teams collect x amount of money and issue their number of tokens accordingly. However, this also means there will be no profit to be gained from buying or selling the currency since it will always have the same fiat currency value.

Even if the project would successfully maintain its 1:1 peg to the US Dollar for an extended period of time, they would face a new problem. Regulators do not take kindly to companies looking to link the value of a central bank-issued currency to something created out of thin air. It is safe to say one would need some specific paperwork – and potentially even licenses in most countries – to provide such a service. Additionally, the company needs to keep a public record of their assets at all times to ensure they have adequate reserves.

More importantly, there needs to be a decent enough demand for the pegged cryptocurrency to make it a worthwhile venture. This has been the downfall for quite a few projects attempting to guarantee such a service. Ziftr, for example, never gained much traction, despite their coins pegged to US$1. If the supply is greater than the demand, one would need very deep pockets to keep offering this service. Unfortunately, the money will dry up sooner or later in that case.

Even successful projects such as Tether run into problems of their own. Due to issues with their partner bank, they are unable to convert the pegged currency back to US Dollars for now. There are exchanges who provide a USDT/USD trading pair, yet the premium to convert back to USD is quite steep. All of this shows creating a pegged cryptocurrency is not evident by any means,  and there will always be risks associated with doing so.

If you liked this article, follow us on Twitter @themerklenews and make sure to subscribe to our newsletter to receive the latest bitcoin, cryptocurrency, and technology news.

196 Comments

  1. boblq May 14, 2017
  2. Ilya Oleynick May 14, 2017
  3. I Co May 14, 2017
  4. UltraParadigm May 14, 2017
  5. Michael Wilterdink May 14, 2017
  6. Pippin May 14, 2017
  7. Antonio July 21, 2020
  8. Lynn Steiger November 12, 2020
  9. buy viagra December 5, 2020
  10. العاب حرب December 5, 2020
  11. In love quiz December 5, 2020
  12. off-page SEO December 5, 2020
  13. italien Sardinien costa Rei December 6, 2020
  14. named.com December 6, 2020
  15. adultfrinendfinder mobile December 6, 2020
  16. seo December 6, 2020
  17. vps server December 6, 2020
  18. online viagra strong pack-40 December 7, 2020
  19. care home jobs near me December 7, 2020
  20. http://smartremstroy.ru/ December 7, 2020
  21. progressivetradinggroup.com December 7, 2020
  22. pbn network December 7, 2020
  23. home December 7, 2020
  24. Kiaarbig December 7, 2020
  25. impresoras Pantum December 8, 2020
  26. Amyarbig December 8, 2020
  27. yohoo December 8, 2020
  28. make money at home December 8, 2020
  29. 마인크래프트 모드 December 9, 2020
  30. Dich vu gai Goi ha noi December 9, 2020
  31. what is vps web hosting December 9, 2020
  32. click here now December 9, 2020
  33. Sardinien Ferien December 14, 2020
  34. website December 14, 2020
  35. Pflege December 15, 2020
  36. free v bucks generator December 16, 2020
  37. wach child porn December 16, 2020
  38. lchf för kvinnor December 17, 2020
  39. www.talad-pra.com December 17, 2020
  40. yarabook.com December 17, 2020
  41. Buy pilex online December 17, 2020
  42. healthcarebusinesstoday December 18, 2020
  43. biography December 18, 2020
  44. 038;client_id=141167762& December 18, 2020
  45. JamesCef January 13, 2021
  46. hey January 14, 2021
  47. JamesFieds January 16, 2021
  48. JamesEmack January 16, 2021
  49. öka muskelmassa minska fett January 19, 2021
  50. cryptoexchange January 20, 2021
  51. bästa vinterkängorna dam January 20, 2021
  52. İngilizce Tercüme January 21, 2021
  53. DavidSek January 22, 2021
  54. indica strains January 23, 2021
  55. joker123 gaming January 24, 2021
  56. mp3clan January 25, 2021
  57. Geraldgof January 26, 2021
  58. CarylKCreger January 26, 2021
  59. abusive og January 26, 2021
  60. sendrag i benen på natten January 27, 2021
  61. white fire January 27, 2021
  62. Tinder dating site January 28, 2021
  63. เลขเด็ด January 28, 2021
  64. can you eat weed January 28, 2021
  65. cheap flights January 29, 2021
  66. Amyarbig January 29, 2021
  67. buylow January 30, 2021
  68. free local dating services January 31, 2021
  69. หวยดัง February 1, 2021
  70. Loans Online February 1, 2021
  71. tinyurl.com February 2, 2021
  72. cheap flights February 2, 2021
  73. thc pen February 2, 2021
  74. tinyurl.com February 3, 2021
  75. how to make with tea February 3, 2021
  76. Kiaarbig February 4, 2021
  77. canada edibles February 4, 2021
  78. Lisaarbig February 5, 2021
  79. blueberry cheesecake strain February 5, 2021
  80. rosin press February 6, 2021
  81. Kiaarbig February 6, 2021
  82. honey oil February 7, 2021
  83. Lisaarbig February 7, 2021
  84. k-g.com February 7, 2021
  85. RolandJache February 7, 2021
  86. Loans February 8, 2021
  87. Loans Online February 8, 2021
  88. Lisaarbig February 9, 2021
  89. Online Loan February 9, 2021
  90. Kiaarbig February 9, 2021
  91. حبوب التنحيف February 10, 2021
  92. Loan Cash February 11, 2021
  93. tinyurl.com February 11, 2021
  94. Lisaarbig February 11, 2021
  95. impresoras pantum opiniones February 11, 2021
  96. Amyarbig February 11, 2021
  97. Joker123 Terbaru February 12, 2021
  98. Loan Cash February 13, 2021
  99. Payday Loan Online February 13, 2021
  100. Payday Loans February 13, 2021
  101. GordonWBurdi February 13, 2021
  102. http://smartremstroy.ru/ February 16, 2021
  103. Amyarbig February 16, 2021
  104. Loans For Bad Credit February 16, 2021
  105. RichardRex February 17, 2021
  106. zithromax prescription February 17, 2021
  107. Payday Loan Online February 18, 2021
  108. Lisaarbig February 18, 2021
  109. Best Payday Loan February 19, 2021
  110. RichardRex February 19, 2021
  111. RichardRex February 19, 2021
  112. Amyarbig February 20, 2021
  113. RichardRex February 20, 2021
  114. Kiaarbig February 22, 2021
  115. dus February 22, 2021
  116. Instant Online Loans February 23, 2021
  117. Direct Lenders February 23, 2021
  118. Online Payday Loan February 24, 2021
  119. Lisaarbig February 24, 2021
  120. Kiaarbig February 25, 2021
  121. Amyarbig February 25, 2021
  122. aurlane vitamine black February 25, 2021
  123. Money Loan February 26, 2021
  124. Lisaarbig February 26, 2021
  125. Kiaarbig February 27, 2021
  126. Quick Loans February 27, 2021
  127. Kiaarbig February 27, 2021
  128. Fastest Payday Loan February 27, 2021
  129. Best Payday Loan February 28, 2021
  130. ClarkGaino March 1, 2021
  131. Evaarbig March 2, 2021
  132. Evaarbig March 2, 2021
  133. Janearbig March 4, 2021
  134. Marcoslic March 5, 2021
  135. Kimarbig March 5, 2021
  136. Evaarbig March 5, 2021
  137. Janearbig March 6, 2021
  138. Evaarbig March 7, 2021
  139. Janearbig March 7, 2021
  140. Janearbig March 8, 2021

Leave a Reply