Chapter 01

A peg is a market outcome

A dollar stablecoin seeks to trade around one dollar, but the mechanism behind that price varies. Direct redemption can connect tokens to an issuer's reserve pool. Secondary-market traders and market makers can then arbitrage deviations. The strength of that loop depends on who may redeem, how quickly, at what minimum size and under which legal terms.

The Federal Reserve's April 2026 review placed the stablecoin market at roughly $317 billion on April 6 after growth of more than 50% since early 2025. Scale makes reserve quality and operational resilience relevant beyond individual token holders.

Chapter 02

Start with composition, not the headline total

An attestation may show assets exceeding liabilities on a reporting date. That is useful, but readers should inspect what the assets are. Cash and short-dated U.S. government obligations behave differently from secured loans, longer-duration instruments, corporate credit or volatile tokens.

Liquidity matters because redemptions can arrive faster than some assets can be sold without loss. Duration matters because interest-rate moves can change market value. Counterparty exposure matters when reserves are held through banks, money-market funds, custodians or repo transactions.

Federal Reserve researchers used issuer disclosures to distinguish total reserve coverage from coverage by high-quality liquid assets. Their analysis illustrates why two ratios can tell different stories: an issuer can report assets above token liabilities while holding a smaller share in the instruments most readily available during stress. That is an analytical comparison, not a claim that one token is guaranteed or another is insolvent.

Chapter 03

Attestation is not the same as an audit

An attestation tests a defined assertion using a defined procedure, usually at a point in time. An audit of financial statements has a broader scope and considers controls, accounting policies and the financial position over a reporting period. Neither label should be used loosely.

Read the accountant's report itself. Note the reporting date, entities covered, definition of reserves, valuation method and exclusions. Then check how frequently reports appear and whether the issuer publishes a reconciliation between token supply and reserve liabilities.

Chapter 04

Redemption rights can be narrower than the brand promise

Ask who has a contractual right to redeem directly with the issuer. Retail users may rely on an exchange rather than the issuer. Minimums, fees, identity checks, sanctions screening, banking hours and supported jurisdictions can change the practical route back to dollars.

Also identify the legal issuer and where reserve assets are held. Segregation and bankruptcy treatment matter if the issuer or a service provider fails. A reserve asset can be high quality while the holder's legal claim remains uncertain.

Chapter 05

The GENIUS Act changes the framework, not every risk

The Federal Reserve notes that the GENIUS Act was signed in July 2025 and created a federal framework for payment stablecoins. Implementation and supervision can improve common standards, but regulation does not make operational, run, cyber or concentration risk disappear. Researchers still need current issuer reports and agency rules.

Chapter 06

A repeatable stablecoin check

Record the issuer, legal jurisdiction, reserve report date, reserve composition, direct-redemption eligibility, minimum and fee. Add the largest custodial and banking dependencies. Compare on-chain supply with the liability measure in the report where definitions permit.

During a depeg, check multiple deep venues and the issuer's redemption status before treating one print as the market. A thin pool can exaggerate a move; a broad discount accompanied by delayed redemptions may indicate a more serious problem.

Stablecoin research should end with dated evidence, not a color-coded “safe” label. The question is not only whether reserves exist, but whether they can meet the right claim, in the right currency, through the right legal entity, when many holders ask at once.

Chapter 07

Composition tiers of fiat-backed stablecoin reserves

The solvency and peg stability of centralized, fiat-backed stablecoins depend entirely on the credit quality, duration, and liquidity depth of their underlying reserve assets. Institutional credit rating agencies categorize stablecoin reserve assets into distinct risk tiers:

Reserve Asset Quality Tiers: - Tier 1 (Pristine Liquidity): Overnight Reverse Repurchase Agreements (RRP) collateralized by US Treasuries; Direct US Treasury Bills with maturities strictly under 90 days. - Tier 2 (High Quality): Cash deposits held at FDIC-insured commercial banks within statutory deposit insurance limits. - Tier 3 (Moderate Credit Risk): Prime Commercial Paper, Certificates of Deposit, and Short-Dated Corporate Debt. - Tier 4 (High Risk / Illiquid): Secured Corporate Loans, Unrated Private Debt, and Volatile Digital Asset Collateral.

Stablecoins maintaining 100% of their backing in Tier 1 assets face virtually zero credit default risk. However, stablecoins holding substantial portions of Tier 2 or Tier 3 reserves are vulnerable to traditional banking runs and asset-liability duration mismatches. If an issuing bank experiences insolvency or commercial debt markets freeze, the stablecoin issuer may be unable to liquidate reserves quickly enough to satisfy sudden redemption surges, resulting in a breaking of the $1.00 peg on secondary exchanges.

Chapter 08

Attestation standards: monthly snapshots vs real-time continuous proofs

A critical distinction in stablecoin risk assessment is the difference between point-in-time accounting attestations and continuous cryptographic Proof of Reserves (PoR):

  • Monthly Accounting Attestations: Performed by independent public accounting firms under American Institute of Certified Public Accountants (AICPA) standards. These reports verify that on a specific date and time (e.g., the final second of each month), reserve assets exceeded circulating token liabilities. The limitation of monthly attestations is that they do not reveal whether assets were temporarily transferred into reserve accounts immediately prior to the snapshot and withdrawn shortly thereafter.
  • Real-Time Cryptographic Proof of Reserves: Utilizing decentralized oracle networks (such as Chainlink PoR) to query custodial bank APIs and multi-sig reserve wallets continuously. Oracles publish verified cryptographic balance feeds on-chain every few minutes, enabling smart contracts and automated risk managers to halt minting or adjust liquidation parameters instantly if reserve ratios drop below 100%.

Investors should cross-examine legal redemption terms, specifically checking whether issuers reserve the right to delay redemptions during market illiquidity or impose minimum redemption thresholds exceeding $100,000. Furthermore, during systemic liquidity freezes, stablecoin market prices on decentralized lending markets frequently decouple from centralized order books; borrowers holding collateralized debt positions in de-pegged stablecoins face sudden liquidation cascades if oracle price feeds track secondary market discounts rather than the issuer's theoretical $1.00 redemption NAV.