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Pegged Cryptocurrency: What Do You Need To Understand?

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DeFi opens up many opportunities for clients to earn money. So, crypto investors can borrow, lend, stake, farm, and make a profit. But during a market crash, most of these methods do not work. That is why it is necessary to look for universal means of earning in the crypto industry. One such option is operations with pegged cryptocurrencies. These assets have low volatility, so they are a good investment even during a bear market.

Not every crypto enthusiast is familiar with this term. In the simplest sense, these are stablecoins that can be purchased or swapped on specific platforms, such as saddle.exchange, Uniswap, SushiSwap, and others. This direction of DeFi is not extremely widespread, so many people still do not understand how to make money on it. Below, you can learn more about pegged cryptocurrencies and how you can start earning on them.

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What is a pegged cryptocurrency?

In simple terms, this is a digital medium of exchange tied to a specific real-world asset, such as fiat currency, gold, and so on. After creating such a coin, the rate is usually 1:1 with the currency to which it is pegged, for example, the US dollar. Subsequent price swings will depend entirely on the dollar, euro, or other asset value.

Unpegged cryptocurrencies have colossal volatility. All due to a volatile market. Yes, one of the brightest examples of such coins is Bitcoin. Analysts have researched that the price of BTC fluctuates ten times more than the price of the US dollar. Although clients can make a fortune, they can also quickly lose everything. That is why pegged assets are pegged to stable currencies to avoid a quick exchange rate change. This allows people not to worry about their funds’ fate because they always have the same value.

Due to the stable exchange rate, these assets are called stablecoins. Most pegged cryptocurrencies are pegged to the US dollar because it is the main currency in the global financial system. So, for example, USDT Tether keeps the value of $1. Many tokens are pegged to other fiat cryptocurrencies or coins like Ethereum, Bitcoin, or others.

Approaches to stablecoins collateral

There are several approaches to how crypto enthusiasts can keep their assets in pegged cryptocurrencies. Most projects have reserves with fiat currencies, which support the stable price of tokens. Companies may also have reserves in the form of gold or precious stones. Such assets may have a slightly higher risk because real-world assets may change in price and affect the cost of the stablecoin.

Other stablecoins have cryptocurrencies in their reserves. Clients can lock assets in the network and mint these stablecoins. Most of these coins are pegged to Ethereum or other cryptocurrencies. So, for example, the DAI token has reserves in the form of ETH. Crypto enthusiasts should lock $150 worth of Ethereum to get $100 of DAI tokens.

There are also offshore and on-shore stablecoins in the blockchain ecosystem. This means that issuers may hold reserves outside of their jurisdiction. Such a strategy may result in regulatory oversight. This policy can create markets for both kinds of pegged currencies.

How to apply pegged currencies?

Crypto enthusiasts interested in stablecoins usually use two methods to store their assets. Below, you can find out more details on these methods.

  • Storing money in the blockchain network. If clients do not have enough funds to invest in Bitcoin, they can keep their assets in stablecoins. Such a strategy can significantly minimize the risks associated with market volatility. It’s like saving money in a bank account.
  • Participation in various DeFi projects. A trendy way to make money on stablecoins is yield farming. Crypto investors can participate in liquidity pools on borrowing and lending platforms. In this way, clients profit from the commissions that other users on the platform pay.

For most people, minimizing risk and even earning hefty profits with little effort is the main incentive to invest in pegged cryptocurrencies. Given the rapid development of this technology, there will be many more methods of earning on stablecoins in the near future.

Written by Marcus Richards

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