The Reserve Problem Is Not New — But the Scale Is
Stablecoins are premised on a deceptively simple guarantee: one token equals one dollar, redeemable on demand. The mechanics that underpin that guarantee, however, vary enormously across issuers and have historically proven far more fragile than the marketing implied. The two dominant categories — fiat-backed stablecoins such as Tether (USDT) and USD Coin (USDC), and the now-defunct algorithmic variety exemplified by TerraUSD (UST) — operate on fundamentally different reserve architectures, yet both carry embedded vulnerabilities that become acute under stress.
Fiat-backed stablecoins are only as safe as the assets held in reserve and the transparency with which those holdings are disclosed. Tether, the largest stablecoin by market capitalisation, has long faced scrutiny over the composition of its reserves. At various points, its reserve disclosures have included commercial paper, secured loans, and other assets that are not equivalent to cash or short-duration US Treasuries. While Tether has progressively shifted toward Treasury holdings in recent years, the precise composition remains a matter of periodic controversy rather than settled audit certainty. When Wall Street says it is pushing back on the stablecoin boom, reserve opacity is a central complaint.