What is peg?

The value a stablecoin or wrapped asset is meant to hold, usually one unit of a currency.

A peg is a claim about a mechanism, not a property of the token: it holds because someone redeems, because collateral can be liquidated, or because a market maker profits from closing the gap. Prices trade a little above or below constantly, which is normal; the question is whether the correction mechanism still works under stress. A sustained deviation is a depeg, and the size and duration matter more than the fact of it.

The word shows up on exchange listings, wallet balances, and issuer marketing, and it is routinely read as a guarantee. It is not one. Nothing in a token's code forces the market to pay a dollar for it. What you are trusting is whoever stands behind the correction.

How it works

Pegs are maintained in one of three broad ways, and knowing which one applies tells you what can break it.

1. Redemption at par. A fiat backed stablecoin issuer promises to swap tokens for currency one for one. If the token trades at 99.5 cents, an eligible party buys cheaply, redeems at a dollar, and pockets the difference until the gap closes. The peg is only as strong as the redemption right and the reserve behind it.
2. Collateral and liquidation. A crypto backed stablecoin is issued against deposits worth more than the debt. If the collateral falls, positions are liquidated and the debt is repaid, retiring supply. See over collateralization.
3. Supply rules alone. An algorithmic stablecoin expands and contracts supply, or mints a second token, to push the price back. There is no outside asset to redeem, so the mechanism depends entirely on continued demand.

Wrapped assets sit in the first family. A wrapped token holds its peg because a custodian will hand over the underlying coin.

Example

Take an illustrative fiat-backed token quoted at $0.9950 while the issuer redeems at $1.0000. Redeeming 1,000,000 tokens costs $995,000 and returns $1,000,000, a gross $5,000 before fees. Now suppose the issuer sets a $100,000 minimum and a 0.1% redemption fee, and settles by wire in two business days. The $1,000 fee and the wait still leave a profit at that size, so the gap closes fast. A holder with $500 cannot redeem at all and can only sell on the market at $0.9950. Both numbers are illustrative; the real terms are in each issuer's own documentation.

Why it matters when you buy

If you buy a stablecoin to sit in while you decide what to do next, the peg is the entire product, and the depth of the book around it decides what your exit is really worth. Check the venue you would sell on before you need to, using the liquidity pages and the fee comparison. Where an asset is listed at all is often the tighter constraint, which is what Buyability is for.

Related terms

stablecoin — the broad category a peg describes; depeg — what a broken peg is called; redemption — the mechanism that usually enforces it; fiat backed stablecoin — reserves held off chain; algorithmic stablecoin — no reserve to redeem; market depth — how much a peg can absorb.

Questions

Does a peg mean the price never moves?

No. Pegged assets trade a fraction of a cent either side of target all day. That drift is the arbitrage incentive working, not a fault.

What makes a peg break for real?

Either the redemption route closes, the collateral behind it falls faster than it can be liquidated, or the demand an algorithmic design relies on disappears. Duration matters: a two-hour wobble and a two-week discount are different events.

Can I always redeem a stablecoin with the issuer?

Usually not as an individual. Most issuers redeem only for vetted institutional accounts above a large minimum, so your practical exit is selling on an exchange.