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Stablecoins: who holds the backing?

Four questions that classify a stablecoin — and why “USD 1.00” on screen answers none of them.

This lesson has had no expert review. It was written for this platform and against the evidence it cites; nobody has gone through it independently.

Learning objectives

  • You can distinguish backing types and name who the claim runs against in each.
  • You can explain what holds the peg and when that mechanism stops working.

Check your prior knowledge

Answer these for yourself before reading on. Wherever you hesitate is where this lesson pays off.

Core concept

Fact

Four questions, not a ticker

Who issues it? What backs it? Who may redeem, on what terms? And how is that checked? Two stablecoins showing an identical price can answer all four differently. The price is the result of those answers, not a substitute for them.

Interpretation

The peg is held by arbitrage, not by a promise

A backed stablecoin holds its price because someone can buy below par and redeem with the issuer at par. That mechanism assumes redemption is actually open — fast enough, in sufficient size, and to enough participants. Where access to redemption is narrow, a discount can persist with nothing missing from the backing.

Risk

A stablecoin is a counterparty, not cash

Holding a backed stablecoin means holding a claim against an issuer and its reserve. The reserve carries risks of its own: rate changes, maturity, the credit standing of the bank holding it. “Stable” describes the price target, not the risk position. For an organization a stablecoin balance is therefore a counterparty exposure and belongs in the report as one.

Definitions

Stablecoin in the glossary
A token whose price is meant to track a reference value, usually a currency.
Depeg in the glossary
A persistent divergence of the market price from the reference value.
Redemption
Returning the token to the issuer for the backing value.

Model

  1. Issuer — who stands behind it, in which jurisdiction?

  2. Backing — what is behind it, at what maturity?

  3. Redemption — who may, from what size, how fast?

  4. Verification — who confirms it, how often, with what scope?

The four questions in order — The market price is the outcome of these four, not a fifth answer.

Worked example

Two stablecoins at USD 0.998

Coin A
daily redemption, from USD 1, many participants
Coin B
redemption only for vetted partners from USD 100,000
Market price of both
USD 0.998

In A, arbitrage closes the gap within a day because many can act on it. In B it hangs on a few participants and a minimum size.

The same price, two different statements about how robust the peg is.

Reading: The price here measures access to redemption, not the backing. Looking only at the price confuses the two.

Retrieval

A stablecoin has traded at USD 0.978 for two days. What is the most defensible statement?
What holds a backed stablecoin's price at its reference value?

Exercise on real data

Look at one stablecoin's markets and record which of the four questions the data available here answers — and which it does not.

Look at stablecoin markets in the Explorer →

Application

An organization wants to hold a stablecoin as a liquidity reserve. Which documents do you request?

Related case studies

Institutional reading

Bank
How should the holding be treated — as a means of payment or as a claim against a counterparty?
Insurance
Which event would be the claim: the discount, or redemption failing?
Advisory
Does the client know who their claim runs against?

Key takeaways