A full reserve requirement mandates that an entity hold an amount of reserve assets equal to 100% of its liabilities. In the context of stablecoins or digital asset custodians, this means that for every digital asset issued or held on behalf of customers, an equivalent value in underlying collateral is maintained in reserve. This policy aims to provide maximum stability and solvency, ensuring that all obligations can be met at any time. It contrasts with fractional reserve banking, which holds only a portion of deposits in reserve.
Context
The concept of a full reserve requirement is a central discussion point in the regulation and design of stablecoins, particularly after events highlighting risks associated with undercollateralized digital assets. News often covers regulatory proposals or stablecoin projects adopting this model to enhance user confidence and ensure asset backing, aiming for greater transparency and reduced systemic risk.
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