A Fiat-Backed Stablecoin is a type of digital asset whose value is programmatically pegged to and fully collateralized by a traditional government-issued currency, such as the US Dollar or Euro, held in reserve. It aims to combine the transactional efficiencies of cryptocurrency with the price stability of fiat money. Its primary purpose is to serve as a stable medium of exchange within the volatile crypto market.
Mechanism
The mechanism involves an issuer maintaining a reserve of fiat currency or highly liquid, fiat-denominated assets equivalent to or exceeding the total supply of the stablecoin in circulation. This 1:1 backing ensures that each stablecoin unit can be redeemed for its corresponding fiat value. Regular audits verify the integrity and sufficiency of these reserves.
Methodology
The methodology relies on a centralized, trust-based model where the stablecoin’s value stability is guaranteed by the issuer’s commitment and regulatory oversight of its reserves. This framework provides a crucial on-ramp and off-ramp between conventional financial systems and decentralized crypto markets, facilitating large-scale institutional options trading and Request for Quote (RFQ) transactions without significant price risk.
This new bank-integrated stablecoin introduces a regulated digital asset framework, enhancing institutional access and liquidity within the Korean market.
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