Stablecoins: the risks behind the peg
Stable is a target, not a promise.
A stablecoin aims to track a reference value. Reserves, redemption conditions and the systems connecting them determine how that aim can fail.
Separate the peg from the market price
A token designed to track one dollar can trade above or below that value. The price available on an exchange is distinct from an issuer’s redemption terms. A holder may not qualify to redeem directly or may face delays, minimums or charges.
Follow the backing
Reserve-backed tokens rely on the assets held and on access to those assets during stress. Reserve composition and liquidity matter. Other designs use crypto collateral or algorithms; the same stablecoin label does not make these arrangements equivalent.
Trace every link
The issuer, reserve custodian, trading venue, wallet and any bridge add different dependencies. Selling quickly can become difficult precisely when many holders want to exit. Do not infer deposit insurance or a guaranteed redemption from the name; check the actual product and applicable protections.
Try the idea
Fictional scenario: 1,000 tokens target $1 each but can be sold for $0.97 each. What would a sale produce before fees?
Check your reasoning
$970, which is $30 below the target value. The target is not the executable price. This arithmetic says nothing about whether or when the peg might recover.
What does a one-dollar target establish?
Choose an answer. Completion is saved only in this browser.