**Fiat-backed stablecoins** are similar to U.S. bank notes from the National Banking Era (1865–1913). In this period, bank notes were [bearer instruments](https://en.wikipedia.org/wiki/Bearer_instrument) issued by banks; federal regulation required customers could redeem them for equivalent [greenbacks](https://en.wikipedia.org/wiki/Greenback_(1860s_money)) (e.g., special U.S. Treasuries) or other legal tender (“[specie](https://en.wikipedia.org/wiki/Specie_Circular)”). So while the value of the bank notes could vary depending on the issuer’s reputation, proximity, and perceived solvency, most people trusted bank notes.  Fiat-backed stablecoins operate under the same principle. They are tokens that users can directly redeem for a well-understood, trusted fiat currency — with a similar caveat: While banknotes were a bearer instrument that anyone could redeem, the holder might not live close to the issuing bank. Over time, people accepted that they could find someone to trade with who could then redeem their banknote for a greenback or specie. Similarly, fiat-backed stablecoin users have grown confident that they can use Uniswap, Coinbase, or other exchanges to reliably find someone who values high quality fiat-backed stablecoins at a dollar. Today, a combination of regulatory pressure and user preference seems to be drawing more and more users toward fiat-backed stablecoins, which constitute over 94% of the total stablecoin supply. Two companies, Circle and Tether, dominate fiat-backed stablecoins issuance, together issuing over $150B in dollar-dominated fiat-backed stablecoins.  But why should users trust fiat-backed stablecoins issuers? After all, fiat-backed stablecoins are centrally issued, and it’s easy to imagine a “bank run” of stablecoin redemptions. To counter these risks, fiat-backed stablecoins benefit from being audited by reputable accounting firms. For instance, Circle undergoes regular audits from Deloitte. These audits are designed to ensure that stablecoin issuers have enough fiat currency or short-term treasuries in reserve to cover any near-term redemptions and that the issuer has enough total fiat collateral to support back every stablecoin 1:1. Verifiable proof of reserve and decentralized issuance of fiat stablecoins or verifiable proof of reserves are both possible, but not yet implemented. **Verifiable proof of reserve** would improve auditability and is possible today through [zkTLS](https://www.vlayer.xyz/blog/web-proofs-for-web3-applications) (zero knowledge transport layer security, also known as web proofs) and similar means, although it still relies on trusted centralized authority. **Decentralized issuance of fiat-backed stablecoins** may be possible, but substantial regulatory issues stand in the way. For instance, to issue decentralized fiat-backed stablecoins, issuers would need to hold U.S. treasuries onchain with a similar risk profile to traditional treasuries. That isn’t possible today, but it would make it even easier for users to trust fiat backed stablecoins.