fiat currencies have wide application in the real world. You can buy food, water, clothes, whatever with them. In short, you always know how much 1 or 1,000 dollars can buy, and this sets the reference point for the dollars worth of things. And this is the main reason why volatility of major fiat currencies is constrained. Let's take the dollar as an example here. If the dollar becomes undervalued in respect to goods which can be bought with it, people start exchanging other currencies for it, and the dollar value rises. On the other hand, if the dollar is overvalued in respect to the same basket of goods, people start selling it for other currencies, and the dollar value falls. In both of these cases, the effect is diminished volatility.
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First, it helps to know the dollar is significantly undervalued in contrast to inflation. Real inflation is close to 10%. In considering the cost of food, rent and water price inflation, actual inflation is higher than 10% in some areas. Inflation is also growing at a faster rate than wages which should be a major concern but goes unreported.
Cut your post to get some space here.
For the record, I don't disagree with your view that the real inflation is well above the reported. But it is the same with other currencies too. Therefore, it is kind of level playing ground for all top currencies which are traded against the dollar. And whenever one currency becomes "unfairly" expensive or cheap in respect to others, this leads to a price-equalizing effect which I described in OP. In the cryptoverse though, there is no such thing. Exchange rates between different coins can be arbitrary and completely out of proportion with respect to "real" value determined by their actual use.