Soft peg

A soft peg is an economic design to keep an asset's market value stable against its target reserve asset or basket of assets, such as the US dollar.

Soft pegs exist on the spectrum between hard pegs and assets with fully floating exchange rates. As opposed to hard pegs, soft pegs employ mechanisms that allow flexible monetary policy, which allows the issuing entity (e.g., a central bank or a DAO) to respond to economic conditions dynamically.

In cryptoeconomics, particularly within decentralized finance (DeFi), soft pegs may be used to create synthetic versions or cryptoasset representations that trade at parity with physical assets such as the US dollar. Further, by using only partial collateralization, soft pegs may be used in efforts aiming to achieve greater levels of capital efficiency.