Definition ∞ The fraction of deposits that banks or financial institutions must hold in reserve, rather than lending out. In the context of stablecoins, it refers to the proportion of underlying assets held to back the value of the digital currency. This metric indicates the solvency and liquidity backing of a financial instrument.
Context ∞ For algorithmic stablecoins and centralized stablecoin issuers, maintaining an adequate reserve ratio is paramount for preserving their peg to a fiat currency or other asset. Debates often focus on the transparency and auditability of these reserves, especially following periods of market instability. Regulators and market participants closely monitor these ratios to assess the stability and trustworthiness of stablecoin ecosystems.
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