Full reserve requirements mandate that an institution holds liquid assets equal to 100% of its liabilities, ensuring that all customer deposits can be redeemed immediately. In the context of stablecoins, this means that every digital token issued is backed by an equivalent amount of fiat currency or highly liquid assets held in reserve. This policy aims to provide maximal stability and eliminate fractional reserve risks. It offers a strong assurance of asset redeemability.
Context
Full reserve requirements are a central discussion point in the regulation of stablecoins, with news often reporting on proposals and debates concerning their implementation. Regulators view full backing as a critical measure to prevent collapses similar to past algorithmic stablecoin failures and to protect consumers. The challenge lies in verifying these reserves transparently and consistently across different stablecoin issuers and jurisdictions.
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