What are stablecoin reserves?
In plain words
Reserves are what stands behind a fiat stablecoin and makes its promise that one token equals one dollar real. For every token issued, the issuer must hold roughly a dollar, or its reliable equivalent, somewhere in the real world.
Picture a coat-check tag. On its own it is just a slip of paper. It is worth a coat only because your coat really hangs in the cloakroom. Reserves are the coat behind the token-tag. No coat, and the tag is empty.
Why does it matter to you? The quality and honesty of reserves is, in essence, a stablecoin’s reliability. Hence a direct risk: if there are fewer reserves than tokens, or they cannot be reached, the peg breaks, and that is exactly what the article depeg is about.
Deeper
What counts as a good reserve
Not all backing is equally reliable. Cash and the short-term government bonds of a reliable country turn into money easily when everyone asks to exchange at once. Riskier assets, such as loans or other crypto assets, can sag precisely at the moment of panic, that is, exactly when the reserve is needed most. So what matters is not only how much reserves there are, but what they are made of.
Reserves exist, but can you reach them
Backed and you can swap the token back for a dollar are not the same thing. It helps to look at three things.
The first is the right to redeem. Direct redemption with the issuer is often not open to everyone or for any amount, for example only to large vetted clients and above a minimum threshold. An ordinary holder more often just sells the token on the market. The issuer sets the terms and can change them.
The second is where the reserves sit. The money is held in banks and with custodian intermediaries, which means it inherits their risk too. A bank can fail, and the funds can become temporarily unreachable. That is what happened in the USDC depeg episode, which the article depeg covers.
The third is liquidity under stress. What matters is not only how much reserves there are and what they are made of, but how fast the reserve turns into money when everyone asks to exchange at once.
Transparency, and the difference between an attestation and an audit
You cannot verify reserves on someone’s word, so people look at confirmation. There is a subtlety here that is useful for a beginner to know.
An attestation is when an independent firm confirms that, as of a certain date, the reserves were such and such. This is a snapshot at a moment, not continuous oversight.
A full audit is deeper and stricter, but it is done less often and not by all issuers.
The takeaway for the reader is this: having a report is good, but it is useful to look at who made it, how often, and whether it is a one-time snapshot or a full-fledged check.
Crypto backing works differently
For stablecoins on crypto collateral, whose design is covered in the article what is a stablecoin, the reserves lie not in a bank. They are locked in a smart contract and are visible right on the blockchain, usually with a surplus, that is, with over-collateralization. Transparency here is higher, since everything is in view, but its own dependence appears, on the price of the crypto held as collateral.
Current amounts and the composition of reserves change constantly, so we do not put them into the reference, you look them up on the issuer’s transparency page.