Definition ∞ A 100% backing requirement mandates that a digital asset be fully supported by an equivalent amount of reserves. This rule ensures each unit of the digital asset can be redeemed for its underlying collateral at any time. It aims to maintain stability and user confidence by mitigating risks associated with fractional reserves. This principle finds application with stablecoins to preserve their value peg to fiat currencies or other assets.
Context ∞ Discussions regarding the 100% backing requirement often surface in regulatory proposals for stablecoins. Authorities seek to establish clear frameworks protecting consumers and preventing systemic financial instability, particularly following market volatility. The discussion centers on auditing standards and the composition of reserve assets, with a strong focus on transparency to verify compliance.
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