Fiat-backed stablecoins are digital assets that are pegged 1:1 to the value of an underlying fiat currency. They are typically collateralized by fiat at a 1:1 ratio and are designed to reduce the volatility of digital assets. Stablecoins not only serve as a store of value, but they also make participation in on-chain activities like decentralized finance easier (DeFi). The fiat currency that serves as collateral for a stablecoin—the most common being USD—is held off-chain, so users must have faith that the fiat reserves are properly managed and audited.
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