What is Soft Peg?

A soft peg is a specific type of exchange rate model that is applied to a currency to maintain its value relative to a reserve currency or basket of currencies. In a blockchain context, a soft peg is usually applied to stablecoins to maintain their 1:1 ratio to a fiat currency like the U.S. dollar, and typically allow for a limited degree of financial flexibility that allows the system to deal with economic fluctuations and shocks.