Definition ∞ A fiat-pegged currency is a type of digital asset, typically a stablecoin, whose value is directly linked to a traditional fiat currency, such as the US dollar or Euro. This linkage is maintained through reserves of the underlying fiat currency or equivalent assets. The purpose is to provide price stability in the volatile cryptocurrency market, enabling users to transact or store value without significant price fluctuations. These currencies serve as a stable medium of exchange.
Context ∞ Fiat-pegged currencies are central to discussions about regulatory oversight in the digital asset space, particularly concerning reserve transparency and asset backing. Regulators are increasingly scrutinizing the mechanisms used to maintain the peg and the quality of the reserves held by issuers. The ongoing debate aims to establish clear standards for these digital assets to ensure consumer protection and prevent systemic risks within the broader financial system.
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