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These are the most common type, including giants like USDT and USDC. They are backed by reserves of fiat currency—mainly US dollars—and US Treasuries stored in secure reserves. When a user redeems a stable coin, the corresponding dollar amount is withdrawn from these reserves, and the token is destroyed to maintain the peg. This process ensures stability, as each token ideally is always backed by a dollar held in reserve.
Some fiat-backed stable coins are tied to other currencies, such as the euro or the British pound. These work similarly but are backed by reserves in local fiat currencies.