Definition
Fiat-backed stablecoins rely on off-chain assets, while crypto-backed stablecoins use on-chain collateral.
How the Models Differ
| Feature | Fiat-Backed | Crypto-Backed |
|---|---|---|
| Collateral | Cash & securities | Crypto assets |
| Transparency | Lower | Higher |
| Volatility Risk | Low | High |
Across both fiat-backed and crypto-backed models, balance sheet structure determines stablecoin risk far more than whether collateral is visible on-chain or held through traditional custodians.
Why the Difference Matters
Fiat-backed models concentrate custodial and regulatory risk. Crypto-backed models concentrate market and liquidation risk.
Trade-Offs
Neither model eliminates risk—it simply redistributes it.
Related Concepts
Written by Ronnie Huss.