In traditional finance, the notion of "one asset that is a proxy for another" has been around forever. Paper money, for example, started out as deposit receipts issued by goldsmiths for customer gold held for safekeeping. Since physical gold is hard to carry around, the receipts eventually took over.

Today gold is primarily used as a store of value, and there too a more easily tradeable proxy is wildly popular. ETFs such as the SPDR Gold Sharesrepresent tens of billions of dollars in value via the same exact mechanism as a fiat stablecoin. A trusted party purchases the underlying asset, stores it with a third-party custodian, then issues shares against those holdings. So long as investors trust the parties involved, the value of the proxy instrument maintains parity.

ETFs have been the most rapidly growing products on Wall Street for decades, and today account for trillions of dollars in value. If they can be trusted, so can a dollar-collateralized token. One could even argue that all else being equal, stablecoins are even more trustworthy than an ETF, because its easier to custody dollars in bank than gold bars in a vault, and unlike most ETFs, all the newer stablecoins can be redeemed for the underlying.