GlossaryBeginner

Fiat-Collateralized Stablecoin

A stablecoin backed by traditional fiat-currency reserves, generally held by the issuer and periodically attested to by a third party.

A fiat-collateralized stablecoin is backed by reserves of a traditional fiat currency — typically held in bank accounts or short-term government debt by the issuing company — with each token theoretically redeemable for its underlying fiat value.

Trustworthiness depends heavily on the issuer's actual reserve holdings and the quality and frequency of independent verification of those reserves (see Kaavon's "Reserve Attestation" glossary definition), which is a meaningfully different trust model than an algorithmic stablecoin's purely on-chain mechanism. See Kaavon's "Fiat-Collateralized vs. Algorithmic Stablecoins" guide for the fuller comparison.

Examples

A fiat-collateralized stablecoin's peg ultimately depends on the issuer actually holding sufficient, genuine reserves — not on an on-chain mechanism alone.
The frequency and independence of a fiat-collateralized stablecoin's reserve attestations is a key factor in assessing its real trustworthiness.