CFA Level I · CFA Level I Exam · Introduction to Digital Assets
Which feature most likely distinguishes a stablecoin that is fiat-collateralized from an algorithmic stablecoin?
A fiat-collateralized stablecoin keeps its peg through reserves of traditional currency held by a custodian. An algorithmic stablecoin instead uses code to adjust token supply. Central bank digital currencies are a separate category issued by monetary authorities.
- AIt maintains its peg using reserves of traditional currency held by a custodianCorrect
- BIt relies on smart contracts that expand and contract token supply to hold its price
- CIt is issued only by central banks and carries the legal status of cash
Explanation
Fiat-collateralized stablecoins are backed by reserves of fiat currency or equivalents. Algorithmic stablecoins use supply-adjusting rules rather than reserves, which is option B. Option C describes central bank digital currency, not private stablecoins.
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