Definition ∞ A reserve requirement is a regulatory mandate specifying the minimum amount of liquid assets, typically fiat currency, that financial institutions or stablecoin issuers must hold to back their liabilities. This requirement aims to ensure solvency, maintain confidence, and provide a buffer against sudden withdrawals. For stablecoins, it ensures the peg to the underlying asset is maintained.
Context ∞ For stablecoin issuers, reserve requirements are a critical and highly scrutinized aspect of their operations, frequently appearing in financial news. Debates center on the transparency, auditability, and quality of these reserves, as well as the regulatory frameworks needed to enforce them effectively. Ensuring robust and verifiable reserves is essential for the stability and trustworthiness of the broader digital asset ecosystem.
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