Stablecoin Reserves and Attestations

What 'reserves' means

Reserves are the assets an issuer holds against the tokens in circulation. The key questions are what those assets are, where they are held, who can reach them, and how quickly they can be converted to cash if many holders redeem at once.

• Composition — the mix of assets. Cash and short-dated government instruments behave very differently from commercial paper, loans, other crypto assets or precious metals.
• Maturity — how long until an asset can be converted without loss. Short maturities are easier to liquidate at face value.
• Custody — which institutions physically hold the assets, and under what account structure.
• Segregation — whether reserve assets are legally separated from the issuer's own operating funds.
• Concentration — reliance on a single bank, custodian or counterparty.

Attestation vs audit

These terms are often used interchangeably in marketing and they are not the same thing. Both are performed by accounting firms; the scope and the level of assurance differ substantially.

• An attestation reports on a specific statement by management, usually the balances held at a stated point in time. It is a snapshot, verified against evidence provided for that date.
• An audit examines financial statements over a period and expresses an opinion on them as a whole, under a broader standard and with more extensive procedures.
• A point-in-time attestation cannot tell you what happened the day before or the day after the reporting date.
• Neither an attestation nor an audit is a guarantee of solvency, of redemption at par, or of future composition.

When you read a reserve report, note three things first: the exact date it covers, who prepared it, and what it explicitly says it does not cover.

Redemption: the part that decides the peg

A fiat-backed stablecoin holds its peg largely because it can be created and redeemed at par by eligible parties. If redemption works smoothly and at scale, market prices are pulled back toward the peg by arbitrage. If redemption is slow, restricted, expensive or limited to a small set of institutional clients, that mechanism weakens.

• Who may redeem directly — often only verified institutional counterparties, not retail holders.
• Minimum redemption sizes and fees.
• Settlement times and banking-hour dependency.
• Conditions under which the issuer may suspend or delay redemption.
• Whether the secondary market, rather than redemption, is the realistic exit for most holders.

Why reserve information changes

• Circulation moves constantly as tokens are issued and redeemed, so the backing ratio is measured against a moving figure.
• Issuers reallocate between asset types as interest rates and banking relationships change.
• Custodians and banking partners change, sometimes quickly.
• Reporting standards and regulatory requirements evolve by jurisdiction.
• Reports are periodic. Between publications, you are relying on the issuer's undertakings, not on evidence.

How to read an issuer disclosure

1. Find the report on the issuer's own site, not a summary elsewhere. Third-party summaries drift from the original.
2. Record the as-of date and the publication date, and note the gap between them.
3. Identify who prepared it and what standard they state they worked to.
4. Read the asset breakdown by category and maturity, not just the headline total.
5. Compare total reserves against tokens in circulation as stated in the same document.
6. Read the limitations section. It is short, and it is the most informative part of most reports.
7. Check whether the issuer is subject to a regulatory regime that imposes reserve and reporting requirements in your jurisdiction.

Risks that reserves do not remove

• Counterparty risk — the issuer, its banks and its custodians are companies, and companies fail.
• Liquidity risk — assets that are sound at maturity can still be hard to sell quickly at par.
• Operational risk — freezes, blacklisting of addresses, key management failures and outages.
• Regulatory risk — a change of regime can restrict issuance, redemption or availability in a jurisdiction.
• Market risk in the secondary market — a token can trade below par even while the issuer maintains that reserves are intact.
• Design risk — crypto-collateralised and algorithmic designs do not hold conventional reserves at all and fail in different ways.

No stablecoin here is described as safe or guaranteed. Tracking a reference value is a design objective, not a promise, and it has failed before for multiple designs.

Sources

• Investor.gov (SEC) — Introduction to investing
• FinCEN — Financial Crimes Enforcement Network
• CFTC — Customer advisories and articles