What is Depegging?
Depegging is a term used in the cryptocurrency and blockchain industry that refers to the removal of a currency’s peg to another asset. Typically, depegging involves an altcoin or stablecoin being unlinked from its original backing source such as fiat currencies (e.g., USD) or other crypto assets (e.g., Bitcoin). This process helps protect investors against market volatility by allowing them to hold their investments without worrying about fluctuations caused by external forces like inflation rates or exchange rate movements. By doing so, it also provides more freedom for users to trade on different exchanges with fewer restrictions imposed by traditional financial institutions and governments.
How Does Depegging Work?
When depegging takes place, the coin’s value will be determined purely based on supply/demand dynamics rather than being linked directly to some predetermined baseline set when originally pegged. As demand for the digital asset increases relative to its initial amount issued, its price begins appreciating accordingly – meaning holders can take advantage of this growth potential if they make wise trading decisions at good times! To ensure stability within markets after depeggeing has occurred then often mechanisms are put in place which allow users control over how much new money enters circulation each period; thus preventing sudden spikes/dips due too large influxes of capital entering all at once which could destabilise networks further down stream if left unchecked before now having been regulated via pegs previously mentioned earlier prior.
