Discovering the Role Played by Fiat Backed Stablecoin in the Cryptocurrency Industry

 

 

As investors look for certainty and stability in their holdings, Fiat backed stablecoins are the latest fad that has become a huge attraction. It represents valuable tokens associated with the value of a specific fiat currency of a country. These assets will be pegged at a 1:1 ratio. To ensure that the price remains at parity with the underlying asset, a specific amount of fiat will be stored in a bank which acts as a trustee which guarantees safety and proper accounting of the asset. Popular examples of Fiat backed stablecoins are Tether (USDT) and TrueUSD (TUSD).  

 Advantages offered by Fiat-backed stablecoins 

• They are a viable alternative to the highly volatile cryptocurrencies. Price fluctuation in Fit-backed stablecoins is very minimal and negligible. 

• Complexity is not there as investors can easily understand the conceptual structure of a fiat-supported token. 

  Limitations of Fiat-backed stablecoins

• Though it offers a high level of safety for investors, it involves stringent regulations sometimes oversight from certain authorities. Since it is pegged to a fiat currency, it virtually has a nation’s pride at stake. 

• Since custodian facilities are involved, it requires sharing of data with a third party. Skeptical investors will find it not trustworthy.

• A higher level of centralization and rigidity is involved to maintain the vital 1:1 ratio. 

• The claims of being fully backed by a fiat currency lack transparency. It needs regular audits to be performed by independent authorities to verify its authenticity. 

      

       Though concerns remain regarding auditing, transparency and practices like price manipulation, fiat-backed stablecoins have a promising future amidst increasing government control and regulatory interference happening in today’s world.