> ## Documentation Index
> Fetch the complete documentation index at: https://docs.theblockchainlibrary.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Fiat-Backed Stablecoin

> A stablecoin intended to maintain value through reserves of fiat currency or equivalent liquid assets.

# Fiat-Backed Stablecoin

A stablecoin intended to maintain value through reserves of fiat currency or equivalent liquid assets.

## Definition

A stablecoin intended to maintain value through reserves of fiat currency or equivalent liquid assets.

## Why it matters

Stablecoin concepts explain mechanisms designed to maintain relatively stable value and liquidity.

## How it works

An entity keeps a reserve of fiat currency. They allow users to deposit fiat and receive an equal amount of tokens. They then ensure the reserve amount equals the total number of tokens in circulation at all times.

## Real-world example

USDT, USDC, and TrueUSD (TUSD).

## Advantages

* High price stability
* Simple 1:1 redemption mechanism
* Widely accepted for trading pairs

## Limitations

* Counterparty risk with the issuer
* Dependence on the traditional banking system
* Requires centralized trust

## Common misconceptions

* It is often thought that these coins are as safe as a bank account. Many people do not realize the issuer could freeze assets.

## Related knowledge

* [Blockchain](/categories/blockchain) — term
* [Cryptography](/categories/cryptography) — term
* [Web3](/categories/web3) — term

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**Canonical knowledge ID:** `glossary:fiat-backed-stablecoin`