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A digital token intended to maintain a stable value against a reference asset, often a currency, and used for payments.
In a reserve-backed design, an issuer holds assets intended to support outstanding tokens and redemption requests. Users need to know what assets are held, where they are kept and what legal claim they have. An arrangement can face losses, a surge in withdrawals or technical failures even if the displayed market price has usually stayed near its target.
Suppose an issuer has one million tokens targeting US$1 each and reports US$1 million of reserve assets. If those assets can be accessed and converted promptly, they may support redemptions. If some are illiquid, lose value or become unavailable in a legal dispute, the headline amount alone does not ensure that every holder can receive US$1 when requested.
Fed proposes reserve backing and application rules for payment stablecoins