Definition ∞ Fiat-pegged tokens are a type of digital asset designed to maintain a stable value relative to a specific fiat currency, such as the US dollar. These tokens achieve their stability through various mechanisms, including holding equivalent reserves of the underlying fiat currency or other assets. They serve as a bridge between traditional financial systems and the volatile digital asset markets.
Context ∞ Fiat-pegged tokens, commonly known as stablecoins, are a critical component of the digital asset economy and a frequent subject in financial news. Regulatory bodies worldwide are increasingly focusing on the reserve requirements and transparency of these tokens to ensure their stability and mitigate systemic risks. Their utility in decentralized finance (DeFi) and cross-border payments continues to drive their widespread adoption.
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