Fiat-Backed Stablecoin

Fiat-backed stablecoins are digital assets that are pegged to the value of a particular fiat currency at a 1:1 ratio. These stablecoins are typically backed by fiat currency in a 1:1 collateralization, aiming to minimize the volatility often associated with other digital assets. Apart from providing a reliable store of value, fiat-backed stablecoins streamline participation in on-chain endeavors such as decentralized finance (DeFi). However, it is important to note that the fiat currency used as collateral, usually the U.S. dollar, is held off-chain, requiring users to have trust in the proper management and auditing of the fiat reserves.