Description: Fiat collateral refers to the use of fiat currencies, such as the US dollar or euro, as collateral on decentralized finance (DeFi) platforms to obtain loans. This concept allows users to access liquidity without needing to sell their assets, thus facilitating the management of their investments. In the DeFi ecosystem, fiat collateral serves as a bridge between the traditional financial world and the emerging realm of cryptocurrencies. By using fiat currencies as collateral, borrowers can secure loans in cryptocurrencies, enabling them to take advantage of market opportunities without liquidating their assets. This practice also contributes to the stability of the DeFi system, as fiat currencies tend to be less volatile compared to cryptocurrencies. Furthermore, the use of fiat collateral can attract a broader audience, including those new to the cryptocurrency space who prefer to work with more familiar assets. In summary, fiat collateral in DeFi represents a significant innovation that combines the flexibility of decentralized finance with the stability of traditional currencies.
