Hard peg refers to the exchange rate policy, where a crypto asset is set to a fixed rate against another asset. For instance, the Chinee Yuan is pegged to U.S Dollar at 8.28 per dollar. Due to the hard peg, the value of the set currency fluctuates in proportion to the pegged currency.
Tether is yet another prominent example of a cryptocurrency that is directly pegged to the U.S Dollar. According to Tether, each token holds the value of a single dollar, which is reserved by Tether Limited. Hard peg currencies are advantageous for being completely transparent and easy to use.
This way, hard pegs can be easily implemented without changing the anatomy of transactions. Hard pegs can also be hard to maintain at times. Especially, when people hold them as actual currency. This often results in the reserve running out of pegged currency.
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