Full reserve backing signifies that a digital asset, typically a stablecoin, maintains reserves equal to or exceeding 100% of its circulating supply. This means that for every unit of the digital asset issued, there is at least one unit of the underlying reserve asset held in custody. The reserve assets can consist of fiat currency, other cryptocurrencies, or a combination of various assets. This approach aims to provide maximum stability and confidence in the digital asset’s peg. It ensures that all issued tokens can be redeemed at their stated value.
Context
News frequently reports on stablecoins and their reserve backing, with a strong emphasis on transparency and the composition of these reserves. Discussions often focus on the auditing of reserve assets and the potential risks associated with different backing structures. Full reserve backing is a critical factor for regulatory scrutiny and investor trust, especially following past stablecoin instability events.
The new federal stablecoin law mandates full reserve backing and public monthly attestations, fundamentally recasting issuance as a federally regulated payments activity.
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