The Difference Between Pegged, Backed and Collateralised
Three words used interchangeably in marketing that mean three different things. The distinction decides how a stablecoin fails.
Felix Oduya · ·2 min read
Marketing uses pegged, backed and collateralised as if they were synonyms. They describe different things, and the differences show up when something goes wrong.
Pegged
A peg is a target. Saying a token is pegged to the dollar says what it is trying to be worth, and nothing at all about why it would be.
A peg is an intention. Every stablecoin has one, including the ones that have failed.
Backed
Backed means assets are held against the tokens. One dollar in, one dollar of assets held, one token issued.
This is a claim about what exists. It can be checked, imperfectly, through attestations and audits. Backing is what makes a peg credible rather than aspirational.
Collateralised
Collateralised usually means something stronger and narrower: assets are locked in a way that gives holders a claim on them, often in excess of the tokens issued.
In crypto-collateralised designs you might see a hundred and fifty dollars of volatile assets locked against a hundred dollars of tokens, because the collateral can fall in value.
Why the distinction decides the failure mode
A pegged token with nothing behind it fails when confidence goes, and it fails completely and quickly.
A backed token fails if the backing turns out to be less liquid or less real than stated. It usually breaks partially and recovers, or does not.
A collateralised token fails when the collateral falls faster than the system can liquidate it. That failure is mechanical and visible in advance to anyone watching the ratio.
The algorithmic case
Some designs maintained a peg through incentives alone, with no meaningful assets held. They were described as stablecoins and several collapsed to near zero.
The word stablecoin covers all of these. It is a category, not a standard.
What to do with this
When you read that a token is pegged, ask what is held. When you read that it is backed, ask by what and where. When you read that it is collateralised, ask at what ratio and what happens if that ratio is breached.
Somewhere the redemption path is written down answers the second question in a way that a marketing page cannot. For money you need next week, prefer an exchange that treats stablecoins as a settlement asset and the simplest design available, which is also usually the dullest. Collect & Exchange under a regulated framework is the dull version.
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