Fiat channels protocol is an extension of a “hosted channels” (aka “custodial channels” or “host-channels”)idea by Anton Kumaigorodski. The original impementation also heavily relies on reference implementation initially developed by the same developer. Standard Sats modified hosted-channels on such way they could support constant nominal value in fiat currency while being programmatically backed by corresponding amount of sats. The most advantageous part of the new standard is that payments from/to such fiat channels will be transferred on top of LN network original nodes w/o any limitations.
This way users can finally split the experience between fiat<–>Bitcoin while maintaining 100% compatibility with LN specifications. Technically, a client-side app generates standard LN messages / packets and host-side, after settling client-host fiat relations, provides routing of payments in the network according to the protocol rules.