Stablecoins

The dollar inside the market

Crypto swings a lot, and that creates a dull, practical problem: to step out of a position you would have to withdraw to a bank and then come back. Every day, with a fee and a wait.

The way out was a token that promises to always be worth one dollar. With it, stepping out became swapping one thing for another inside the market itself — no bank involved. That is why most crypto volume in the world trades against a stablecoin rather than against actual dollars.

Notice the verb, though. It promises to be worth a dollar. No law of physics forces it — somebody made a commitment. The whole lesson is about who that somebody is and what holds the commitment up.

What sits on the other side of the promise

Not every stablecoin holds the promise up the same way, and the difference is not a technicality: it decides what can go wrong. Tap each type.

Redemption — not goodwill

Here is the mechanism, and it is simpler than it sounds. If the token trades below a dollar and somebody is obliged to redeem it for a dollar, then buying cheap and redeeming is certain profit. Many people do it at once, the buying pushes the price, and it comes back.

In other words: the peg is not held up by the promise, but by the ability to collect on it. Drag the price, then close redemption to see the difference.

An attestation is not an audit

Serious issuers publish reports on their reserves, and the press tends to call all of them audits. They almost never are. The commonest document is an attestation: an accounting firm confirms that, on a specific date, the assets existed and were worth at least the tokens in circulation.

That is real, useful information — and considerably less than it sounds. An attestation is one day's photograph, not the month's film. It does not assess the risk of the banks holding the reserves, does not look for off-balance-sheet obligations, does not examine the issuer's internal controls, and makes no judgement about the business continuing.

A full audit does all of that: it examines the complete financial statements, the controls, the operational risks and the related parties. When you read “audited”, it is worth checking whether it is an audit or a monthly attestation. They are very different sizes.

Now read the sentence

It's the same one from the top, unblurred. Tap each highlighted part.