Do these 3 things before closing this tab:
1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errorsA centralized stablecoin can target a steady price without guaranteeing that you can redeem it for dollars on demand, that it will always trade at that price, or that your balance is protected like an insured bank deposit. Its stability depends on an issuer, reserve assets, banks and custodians, redemption services, and blockchain infrastructure—all of which can face stress or fail.
How a centralized stablecoin is supposed to stay stable
A centralized stablecoin is a digital token for which an issuer manages issuance and redemption and holds reserve assets outside the blockchain. The issuer’s reserve and redemption arrangements are meant to support the token’s target value, often one dollar. But three separate things matter to a holder: the token’s target price, its price on an exchange, and whether the holder can actually redeem it for fiat money on usable terms.
In the primary market, eligible customers interact with the issuer to create or redeem tokens. In the secondary market, people trade tokens through exchanges and other venues. Those markets can behave differently: if direct redemption is unavailable or confidence falls, the exchange price can move away from the target. The Federal Reserve explains this distinction in its overview of primary and secondary stablecoin markets.
What can go wrong when you hold one?
Issuer, reserve, and counterparty problems
Redemption depends on more than the headline value of a reserve. The assets must be sound, liquid, legally available, properly held, and accessible through the issuer’s banks and other counterparties. Bank deposits create exposure to banks; securities and repurchase agreements bring their own credit, collateral, market, and liquidity risks. Concentration in a particular bank, custodian, or service provider can make a disruption more consequential.
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The Federal Reserve has highlighted that stablecoin issuers do not have deposit insurance or access to central-bank liquidity in the way banks do, making reserve quality and reliable redemption important vulnerabilities. A reserve balance is therefore not the same as cash immediately available to every token holder.
Redemption limits and liquidity strain
An issuer’s one-for-one redemption promise is useful only if you can access it. Eligibility rules, minimums, fees, business hours, banking rails, technical availability, and legal restrictions can affect whether and when a holder can redeem. Read the issuer’s terms rather than assuming every token holder has direct access to the issuer; for example, Circle’s USDC risk disclosures describe conditions that can affect redemption.
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Even a reserve made up of high-quality liquid assets may not convert quickly enough to meet a sudden, concentrated wave of redemptions. Stress can involve both the assets and the mechanics of moving money—especially if many holders seek fiat at once or intermediary services are unavailable. Circle’s 2025 annual report also discusses concentrated redemption and stress-sufficiency risks in its SEC filing.
Market depeg
A stablecoin can trade below its target on exchanges when confidence weakens, redemption is interrupted, or arbitrage cannot quickly close the gap. A depeg is a market-price and access warning; it does not by itself prove that reserves have been permanently lost. The result depends on the circumstances and how they develop.
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Freezing, legal restrictions, and jurisdiction
A centralized issuer may have the contractual or technical ability to block an address or restrict transfers. Legal processes, such as sanctions or valid government orders, can also require funds to be frozen or surrendered. The powers and procedures vary by issuer and jurisdiction, so one company’s terms should not be treated as universal. Circle describes its own circumstances for blocking addresses and freezing USDC in its risk disclosures.
Operational, cyber, and blockchain interruptions
The token depends on a chain of services: issuer systems, banks, custodians, exchanges, wallets, and the blockchain network itself. Cyberattacks, software defects, network congestion, or service outages can delay transfers, issuance, or redemption. Circle’s disclosures identify technical difficulties and attacks as possible causes of interruptions or failed and delayed transactions; other issuers’ arrangements may differ.
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Regulatory change and uneven protections
Rules vary across countries and can determine who may issue tokens, what reserves are permitted, what disclosures are required, and which supervisors have authority. The BIS describes substantial variation among national approaches in its report on stablecoin issuance regulation.
U.S. law provides one example of a statutory framework addressing permitted reserve categories and public disclosure of redemption policies: Title 12, Section 5903 of the U.S. Code. A framework in one jurisdiction is not a guarantee against loss, and its relevance depends on whether it applies to the issuer and holder.
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What the March 2023 USDC episode shows
In March 2023, Circle said it could not access part of USDC’s reserves held as uninsured deposits at Silicon Valley Bank. Redemption demand rose, USDC traded below its dollar target in secondary markets, and Circle’s primary-market operations were closed over the weekend. Pressure eased after public authorities announced protection for SVB depositors. The Federal Reserve’s account of the episode illustrates how bank exposure and limits on redemption access can affect a market price; it is a historical example, not evidence of USDC’s current reserve composition.
Read the Federal Reserve’s account of the SVB failure and its impact on stablecoins for the episode’s sequence and market effects.
How to compare centralized stablecoins
Before holding a token, assess the arrangements that connect its target price to your ability to get money out. Issuer disclosures are time-sensitive; review current terms and reserve reporting rather than relying on old percentages or broad claims about all stablecoins.
- Reserve quality and liquidity: Identify asset types, maturities, concentrations, custodians, and how assets could be converted under stress.
- Redemption access: Check who may redeem, the value and currency promised, fees or minimums, operating hours, and conditions that can delay or restrict redemption.
- Disclosure and assurance: Look for clear, current reporting on reserves, custodians, and liabilities, and determine who prepared or independently reviewed it.
- Concentration: Consider dependence on a single issuer, bank, custodian, or service provider.
- Freeze and legal powers: Read the token’s terms for address-blocking authority, legal restrictions, and governing jurisdiction.
- Operational resilience: Consider whether issuance, redemption, the relevant blockchain, and customer support can remain available during disruption.
- Applicable regulation: Determine which licensing, supervision, reserve, and redemption rules are actually in force for the issuer and where you live.
There is no single current, comparable issuer-wide figure that establishes the risk of every centralized stablecoin. The relevant comparison is the specific token’s current legal terms, reserve arrangements, redemption route, and applicable regulatory regime.
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