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Fiat-Backed Stablecoin


Fiat-Backed Stablecoin

Concept

A fiat-backed stablecoin is a token (and a type of stablecoin) that is created and issued on a fiat currency. The token represents the currency of a country (the US dollar, Euro, Pound sterling or Russian ruble) and by means of purchase and sale of which a holder / user can deposit and withdraw money and electronic money, since the token represent the currency it is pegged to).

A fiat currency is a currency that has no intrinsic value but is issued on the creditworthiness of a government, but without direct connection with (i.e., convertibility to) a precious metal commodity (like gold or silver). However, it may be supported by reserves of such metals held by the issuing central bank. Fiat currency is established as a legal tender by government regulations. Legal tender is a form of money that courts of law and the broader legal system in a country legally recognize as satisfactory means of payment for any monetary debt within its jurisdiction. In other words, it is a form of money legally valid for the payment/ settlement of debts (and coutervalues) and that must be accepted for that purpose when presented by a legal or corporate person.

Broader category

A fiat currency token (fiat stablecoin) is a type of asset-backed tokens (ABTs), in which pegging involves fiat currencies and hence it provides the stability of fiat currencies while capitalizing on the speed and inclusive reach of cryptocurrencies. Examples include tokens such as USDC and USDT that are widely used for trading, fund transfers, and as a hedge against crypto risks/ volatility. By origin, an asset-backed token is  a cryptographic asset (cryptoasset)- and a specific type of security token– that is pegged to another underlying asset (as a reserve) to maintain its value over time. Asset-backed tokens derive their value from physical assets or other digital assets that have a sort of stable value, whereby supporting such the stability of such a token. The underlying assets may widely vary depending on the scope of tokenization, including real estate properties, precious metals like gold or silver, commodities, or artworks, and collective interests (fanship).

Synonyms

A fiat stablecoin (fiat-backed stablecoin) is also known as a fiat crypto token.



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