Collateralized Stablecoins

Definition ∞ Collateralized Stablecoins are digital currencies designed to maintain a stable value, typically pegged to a fiat currency like the US dollar, by backing their issuance with other assets. These backing assets can be fiat currencies held in reserves, other cryptocurrencies, or a combination thereof. The collateral acts as a guarantee, aiming to ensure that each stablecoin can be redeemed for its pegged value. This mechanism aims to mitigate price volatility.
Context ∞ Collateralized stablecoins form a vital liquidity layer within the broader digital asset economy, facilitating trading and lending activities. Recent news often highlights regulatory scrutiny regarding the transparency and sufficiency of the collateral reserves held by issuers. Debates persist around the auditability of these reserves and the potential for de-pegging events during periods of market stress.