Fiat-backed stablecoins, like USDC or USDT, are pegged to real-world currencies, offering more stability but relying heavily on centralized trust. Crypto-collateralized ones, such as DAI, offer decentralization and transparency but are more volatile since they depend on crypto reserves. Both have unique trade-offs—fiat-backed coins ensure liquidity, while crypto-backed coins promote decentralized finance (DeFi).