Overview
A fiat-backed stablecoin is backed by fiat reserves held by a central issuer, like USDC or USDT. Each token is redeemable for the underlying currency. It provides high stability and trust in the issuer.
How It Works
The issuer holds fiat reserves in bank accounts and issues tokens against them. Users can mint or redeem tokens for fiat. Reserves are often audited, and the peg relies on redemption.
Why It Matters
Fiat-backed stablecoins dominate the market and are the liquidity backbone of crypto. Their centralization and reserve transparency are key risks. They are the bridge between fiat and crypto.
Related Concepts
Fiat-Backed Stablecoins contrast with Crypto-Backed and Algorithmic stablecoins. They relate to Stablecoin regulation and USDC/USDT.