Protocol Reserves

Definition ∞ Protocol reserves are digital assets held by a decentralized protocol to ensure its stability, liquidity, or to back its native tokens. These reserves are typically managed by smart contracts or decentralized autonomous organizations (DAOs). They serve critical functions, such as maintaining a stablecoin’s peg or providing liquidity for decentralized exchanges. The transparency and management of these reserves are fundamental to the protocol’s credibility.
Context ∞ Discussions about protocol reserves are central to news concerning stablecoin stability, decentralized lending platforms, and other DeFi applications. The composition and adequacy of these reserves are frequently scrutinized, especially during periods of market stress. Public reporting on protocol reserves helps users assess the financial health and risk profile of decentralized systems.