When you talk about a pegged asset in the crypto world this means that the value of an asset, usually a stablecoin of some sort, is tied down to the value of another commodity or currency. The best way to explain this further is to literally talk about an example. Tether is one of the most famous pegged assets on the market for better or worse. The cryptocurrency shows up on the market as USDT. The value of one Tether is always going to equal one US dollar. USDT as a currency is pegged to the US dollar. The US dollar is not the only currency or asset that a cryptocurrency can be pegged to. There are other options on the market of crypto assets that take their value from commodities such as gold.
What Is The Benefit of A Pegged Asset?
There are different types of benefits that pegged assets bring to the table. These assets actually represent benefits for both the platforms that are offering them and the users who are making different types of investments. A decentralized exchange may use a pegged asset as the official currency of the platform. They do this in an effort to keep the transactions within a marketplace in order. That way they won’t have to exchange the balances of each user every single time. It’s the famous fair currency or mickey mouse dollars example.
For users or investors, a pegged asset exchange offers the ability to benefit from the use of a crypto asset without the volatility that is natural to regular cryptocurrencies. What this means is that you’re going to be able to process transactions quickly, and without having to pay hefty fees. Yet on the value scale what you’ll be getting is a dollar-for-dollar transaction.
One of the reasons why people didn’t want to get into crypto transactions was the fact that you had to contend with the ever-changing prices of Bitcoin or Ethereum. With a pegged asset you get all of the benefits and you minimize the downside. You’re at a lower risk of having your capital lose value. These are just two of the main benefits that are on the table with a pegged asset exchange.
Are Pegged Assets Good Investments?
This is a question that keeps coming up, people are daily going to Google to figure out the answer to this question. The reality is that they can be good investments, or bad investments depending on what your end goal is, and the moment in which you get into this type of investment.
For example users on certain platforms may exchange their BTC or ETH capital for a position in a stable coin if the market is too volatile for their taste at that point. Going to this pegged asset could save you from losing money if a particular cryptocurrency is on a downward trend. Does this mean that a pegged asset is a good long-term investment? That will depend on what the asset is tied down to.