Fiat-Pegged Cryptocurrencies: Stability in a Volatile Market
Fiat-Pegged Cryptocurrency is a coin, token or asset issued on a blockchain that is tied to a state or bank currency.
What is Fiat-Pegged Cryptocurrency?
Fiat-Pegged Cryptocurrency is the coin, token or asset issued on an blockchain that has been tied to a government or bank dollar. The design of this currency is to keep the reserves in order to have a monetary value that has been determined.
The dynamics of the cryptocurrencies are very volatile. In the cryptocurrency world, large swings up and down are common in the cryptocurrency world. Almost all stable coines are most often tied to major currencies such as the euro, the British dollar or the U.S. dollar. The Fiat currency can depreciate against other currencies, the possibility of large fluctuations in exchange rates is unlikely.
The structure of stable coins is different in their structure. The strict structure of some cryptocurrencies tied to fiat has a strict structure – they can only be issued if a unit of fiat money is deposited.
The most popular example of fiat-linked cryptocurrencies is Tether. It was noted that Tether previously claimed that each unit is backed by US dollar, so it became considered as an uncontroversial cryptocurrency. At the end of March 2019, Tether expanded its collateral to include affiliate credits, that are not considerable as safe and reliably like fiat-backed currencies.
FIAT backed cryptocurrencies are considered the largest owner of cryptocurrencies on exchange platforms. A common reason for this is that exchanges have to protect positions from price volatility, they hold some reserves in fiat-backed assets and are able to do so. The fact that the exchanges are interested in trading fiat-backed cryptocurrencies is another factor that encourages them to hold fiat-backed cryptocurrencies. Not all crypto exchanges have access to banking services. The idea of holding some fiat-backed cryptocurrencies can be used as an hedge in this case.