Fiat-pegged cryptocurrency or simply pegged cryptocurrency refers to the crypto assets which are issued on the blockchain but linked directly to a bank-issued currency. Stablecoins are the best examples of fiat-pegged cryptocurrency.
They were introduced to tackle the volatility every cryptocurrency is subjected to. This is where stablecoins are pegged with the British pound or American Dollar. There are also instances where a fiat-pegged cryptocurrency can be issued once fiat money of the same amount is deposited.
Crypto exchanges are the largest holders of fiat-pegged cryptocurrencies. This allows them to protect their positions when subjected to volatility. Expanding an exchange’s liquidity base is yet another driving factor behind the use of fiat-pegged cryptocurrencies.