Learn / Intermediate
Stablecoins: pegs, reserves and redemption
Understand what supports a stablecoin’s target value and why the peg can break.
The Token Press education desk · Reviewed 2026-09-08
The promise behind the unit
A stablecoin aims to track a reference value, commonly a fiat currency. The word stable describes an objective, not a guarantee. Designs differ: some rely on reserves held by an issuer, others on crypto collateral or mechanisms that change supply.
A token balance on a blockchain and a legal right to redeem with an issuer are not necessarily identical. Eligibility, minimum amounts, jurisdictions and service terms can affect who can redeem directly.
What to investigate
Identify the issuer, reference asset, collateral, custody arrangements and redemption process. Read what a reserve report actually covers, its date and the nature of the assurance provided. An attestation at one point in time should not be described as continuous proof of every liability.
Crypto-backed designs add collateral-price and liquidation risks. Mechanisms relying on confidence in another token can be vulnerable when both assets face selling pressure.
A useful thought experiment
Imagine a token trades for $0.98 even though its target is $1. Ask who can redeem it, how long redemption takes and what costs or restrictions apply. Those questions help explain why arbitrage may not immediately restore the target.
Distinguish holding a stablecoin from depositing it into a lending application. The latter adds another set of contract and counterparty risks. The interest rate of a product does not demonstrate the safety of the underlying token or the product itself.
Sources & further reading
Educational content. Examples are illustrative. Consult the linked documentation for current details.