What is Fiat-Backed Stablecoin?

Fiat-backed stablecoins are digital assets pegged to the value of an underlying fiat currency at a 1:1 ratio. They are typically collateralized by fiat at a 1:1 ratio as well and are built to reduce the volatility associated with digital assets. Stablecoins not only serve as a store of value, they also simplify engagement in on-chain endeavors like decentralized finance (DeFi). The fiat currency which serves as collateral to a stablecoin — the most common being USD — is held off-chain, which requires users to trust that the fiat reserves are properly managed and audited.