Fiat reserves

Fiat reserves refer to cash reserves mandated either by the Federal Government in countries such as the United States of America. An asset in a country’s balance of payment they used to regulate currency and money supply and manage liquidity is also called fiat reserves. Fiat reserves are used in banking called fractional banking; these act as deposits or collateral against loans. Using crypto assets as collateral for staking is equivalent to Fiat reserves. These are reserves that allow the system to operate and function effectively. Fiat reserves allow Banks to access liquidity to meet unexpected obligations. Currently, the traditional finance market is over-leveraged. Fiat reserves act as a barrier protecting investors from liquidity constraints and bad debts. Fiat reserves from a consumer’s point of view can be seen as savings.