Reference Asset

TLDR: Onchain Pegged Assets maintain a value relative to another reference, such as fiat currencies, staked cryptocurrencies, or real-world assets. These assets are essential for DeFi’s growth, providing new use cases and financial opportunities.

Introduction

A Pegged Asset in DeFi is a token or digital asset designed to maintain a specific value relative to another reference—often a fiat currency, another cryptocurrency, or a basket of assets. The key idea is that the token’s value follows or mirrors the value of something else, known as its “peg.” If the peg is effectively held, holders expect the token’s price to stay consistent with the reference price or rate.

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Types of Pegged (or Correlated) Assets

1. Stablecoins

• Definition: Stablecoins aim to keep their value pegged to a fiat currency like the US Dollar.

• Mechanisms:

  1. Fiat-Collateralized: Backed 1:1 by fiat reserves. Examples: USDC, USDT.

  2. Crypto-Collateralized: Overcollateralized by other cryptocurrencies. Example: DAI (backed by ETH and other assets).

  3. Algorithmic: Maintain peg through algorithmic controls, arbitrage incentives, and sometimes partial collateral. These can be more volatile.

• Use Cases: Price stability in DeFi trading pairs, lending platforms, and as a store of value.

2. Liquid Staking Tokens

• Definition: Liquid staking tokens represent staked assets in a proof-of-stake (PoS) blockchain (e.g., ETH 2.0, Solana), while preserving the liquidity of the staked position.

• Mechanisms:

  • When users stake their tokens via a protocol (e.g., Lido, Rocket Pool), they receive a derivative token that tracks the staked asset’s value plus accrued staking rewards.

  • These derivative tokens can be traded or used in DeFi (lending, yield farming) without having to “unstake” directly from the blockchain protocol.

• Pegged or Correlated?: They are correlated to the underlying staked asset (e.g., ETH), often at a 1:1 ratio plus staking yield. However, slight deviations can occur depending on market liquidity, protocol fees, or redemption constraints.

3. Liquid Restaking Tokens

• Definition: Liquid restaking builds on liquid staking by allowing the already-staked asset or its staking derivative to be re-staked again, potentially compounding yields.

• Mechanisms:

  • Protocols like EigenLayer on Ethereum enable users to delegate staked ETH (or derivative tokens) to multiple services or security layers.

  • In return, they might receive a new derivative token that represents the re-staked position and associated rewards.

• Pegged or Correlated?: Similar to liquid staking tokens, these are correlated to the original staking token but may incorporate additional complexities or risks (e.g., slashing on multiple layers).

4. Real-World Assets (RWAs)

• Definition: These are tokenized versions of traditionally “offchain” assets, such as real estate, bonds, invoices, or commodities. The token aims to track the value of the real-world asset it represents.

• Mechanisms:

  • Issuers typically lock legal rights to the underlying asset within a trusted entity or legal framework, and then mint tokens to represent fractionalized ownership or claims.

  • The peg or correlation depends on the issuer’s ability to maintain backing and redeemability (e.g., if each token corresponds to a share of a real-world bond, holders may be entitled to returns and principal redemption).

• Use Cases: Providing on-chain liquidity for traditionally illiquid real-world assets, enabling global, 24/7 markets and fractional ownership.

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Conclusion

In short, pegged assets are foundational to many DeFi applications. From stablecoins that track fiat currencies, to derivatives that mirror staked tokens, to real-world assets represented onchain—all of these forms of “pegged” or “correlated” assets help expand the use cases around DeFi.