How does the concept of fiat-backed cryptocurrencies work?

3 answers

• Dec 16, 2021 · 3 years ago
  Fiat-backed cryptocurrencies, also known as stablecoins, are digital assets that are pegged to the value of a traditional fiat currency, such as the US dollar or the euro. The concept behind these cryptocurrencies is to provide stability and reduce the volatility often associated with other cryptocurrencies like Bitcoin. These stablecoins are backed by reserves of the corresponding fiat currency, which are held by a trusted third party, such as a financial institution or a regulated custodian. The reserves ensure that the value of the stablecoin remains stable and is equal to the value of the underlying fiat currency. This allows users to transact and store value in a cryptocurrency that is not subject to the same price fluctuations as other cryptocurrencies.
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• Dec 16, 2021 · 3 years ago
  Fiat-backed cryptocurrencies work by leveraging the benefits of blockchain technology while maintaining a stable value tied to a traditional currency. This is achieved through a combination of smart contracts and reserve management. The smart contracts ensure that the stablecoin is always redeemable for the underlying fiat currency at a fixed rate. The reserve management involves maintaining a sufficient amount of fiat currency reserves to back the stablecoin in circulation. This ensures that the stablecoin can be exchanged for the corresponding fiat currency on demand, providing users with confidence in its value and stability.
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• Dec 16, 2021 · 3 years ago
  BYDFi, a leading cryptocurrency exchange, offers a fiat-backed stablecoin called BYDUSD. BYDUSD is backed by a reserve of US dollars held by a regulated custodian. This ensures that each BYDUSD token is redeemable for one US dollar. The use of a trusted custodian and regular audits provide transparency and assurance to users. BYDUSD can be used for various purposes, including trading, remittances, and as a store of value. It offers the benefits of cryptocurrencies, such as fast and borderless transactions, while maintaining the stability of a traditional fiat currency.
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