Definition
A peg is a conceptual price anchor that defines how one asset is intended to track the value of another reference asset. In crypto and DeFi, pegs commonly link tokens to fiat currencies, such as a 1:1 relationship with the US dollar. The peg itself is the rule or target, not a guarantee, describing the intended exchange rate or value alignment. It is central to the design of many stable-value tokens and other synthetic assets.
For stablecoins like DAI, FRAX, TUSD, and USDT, the peg typically refers to maintaining a value close to one unit of the underlying reference, often one US dollar. The mechanisms used to support the peg can vary widely, but the conceptual peg remains the same: the token is defined as being worth approximately the reference asset. When the market price deviates from this target, the asset is described as trading above or below its peg. The strength and reliability of a peg are key characteristics in evaluating a stablecoin or pegged asset.
Context and Usage
In DeFi, the term peg is frequently used when discussing the behavior and stability of any Stablecoin. Market participants monitor how closely a token’s traded price aligns with its stated peg to assess its stability. Temporary deviations are often called de-pegs or peg breaks, indicating that the market price has moved meaningfully away from the intended reference value. Persistent or severe deviations can signal structural issues with the asset’s design or confidence in it.
The notion of a peg also underpins how risk, collateralization, and liquidity are understood for assets like DAI, FRAX, TUSD, and USDT. Protocols and users rely on the assumption that these tokens will remain close to their peg when used as collateral, settlement assets, or units of account. As a result, the concept of a peg is foundational to many DeFi systems that depend on stable pricing relationships between on-chain assets and off-chain reference values.