Fiat Money | Stablecoin

Fiat Money / Fiat Currencies - These are traditional currencies like the dollar or euro, issued and backed by governments and central banks. They are widely accepted as a means of payment and used for everyday transactions.

Stablecoin / Stablecoins - A special type of cryptocurrency, usually in the form of a token, whose value is tightly linked (often at a 1:1 ratio) to the value of a traditional currency such as the U.S. dollar, euro, and sometimes even to the value of gold, silver, or crude oil.

Stablecoins are primarily used to facilitate trading on cryptocurrency markets, enabling easy conversion of investments in cryptocurrencies (such as Bitcoin or Ethereum) into more stable assets. Due to their price stability, they often serve as a means of payment or a safe place to store capital in volatile market conditions.

Importantly, stablecoins are issued by private companies, which are obliged to maintain a value equivalent of the issued tokens to the fiat currency backing. However, it should be noted that not all companies issuing stablecoins, such as Tether (USDT), actually have full backing at a one-to-one ratio with the declared asset. In some cases, issuers may invest users' funds, which can lead to risk and potential insolvency of such an issuer.

Updated on: 12/11/2023

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