hardpeg

What is "Soft Peg" vs "Hard Peg" (Stablecoins)?

You might think all stablecoins like USDT, USDC are exactly the same, always worth $1, just like exchanging a dollar bill for four quarters. But that’s not always the full picture!
This "peg" is a promise, but like some promises are super strict and others have wiggle room, not all stablecoins uphold that $1 value identically.
Here’s the confusing part: some aim for that $1 like a non-negotiable law, while others are more of a guideline, allowing flexibility.
We often mistake this for instability, which can feel super scary! 😬
This difference defines "Hard Peg" vs. "Soft Peg". A hard peg stablecoin is like a rigid contract, usually backed 1:1 by real dollars or liquid assets, with strict mechanisms instantly correcting any drift from $1.
Therefore, a soft peg stablecoin is designed to generally stay around $1, allowing slight, temporary fluctuations (like $0.98 or $1.02), relying on market incentives to pull it back.
The big takeaway: soft pegs offer more operational freedom and can be resilient because they aren't fighting every tiny movement.
Understanding how your stablecoin maintains its peg gives you a clearer picture of its design and risk. You now know stability isn't one-size-fits-all! 💡

#Tokenomics #Stablecoins #CryptoEducation #HardPeg #SoftPeg
- Disclaimer: Sharing knowledge and insights as part of learning and growing together. For educational purposes only, not financial advice.