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Assets held to support an issuer's outstanding obligations or claims, such as redeemable stablecoins.
An issuer may hold cash, short-term securities or other permitted assets under a particular arrangement. Reliable backing depends on keeping the assets available, recording the claims accurately and protecting them from misuse or competing claims. If assets and outstanding promises are measured on different bases or dates, an apparent match between totals can be misleading.
Suppose an issuer owes US$10 million in possible redemptions and holds US$8 million in cash plus securities valued at US$2 million. The stated backing totals US$10 million. If the securities can only be sold for US$1.7 million during a stressed period, available value would be US$9.7 million before other costs. Equal reported totals did not prevent a shortfall.
Fed proposes reserve backing and application rules for payment stablecoins