A fiat-backed token is a type of stablecoin whose value is pegged to and fully collateralized by a traditional government-issued currency, such as the US dollar or Euro. For every token issued, an equivalent amount of fiat currency is held in reserve by a custodian. This mechanism aims to provide price stability and bridge traditional finance with the digital asset ecosystem. These tokens are designed for reliable value transfer and as a store of value.
Context
Fiat-backed tokens are a significant component of the digital asset market, facilitating trading and acting as a safe haven during market volatility. News frequently covers regulatory developments concerning these tokens, particularly requirements for reserve attestations and operational transparency. Debates continue regarding the regulatory oversight needed to ensure their stability and consumer protection.
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