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A stablecoin can lose its peg without its blockchain failing. The ledger may process transfers correctly while holders worry that the issuer cannot return their money at par, that reserves are hard to access, or that banks and other intermediaries cannot handle withdrawals. For fiat-referenced stablecoins, the peg depends on both working technology and confidence in the institutions behind it.
What “trust” means for a stablecoin
A stablecoin is a token designed to hold a stable value, often relative to a fiat currency such as the U.S. dollar. Its blockchain records ownership and transfers; it does not, by itself, guarantee that each token can be exchanged for the target amount of money.
That distinction matters in a rush to redeem. A token can continue moving between wallets while its market price falls below its target because buyers doubt whether the backing exists, can be sold quickly, or can be reached through the redemption process. Federal Reserve Governor Michael S. Barr has highlighted the particular vulnerability of arrangements that promise redemption on demand at par while holding noncash reserves.
The promise relies on a chain of expectations: reserves are adequate; they are liquid enough to meet withdrawals; redemption is legally and practically available; custody and governance protect the backing; and the services needed to hold, transfer, or redeem tokens remain available. A weakness at any link can undermine confidence even if the ledger continues to operate.
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Why a functioning ledger cannot defend the peg
Reserves may not be available at the moment they are needed
The value of a reserve depends not only on what it is worth on paper but also on whether it can be converted into cash in time to meet redemptions. Assets that are volatile, difficult to sell, or exposed to financial institutions can become a source of concern during market stress. Holders may try to exit before others do, putting pressure on both the reserves and the issuer’s ability to process payments.
Redemption access may be narrower than token ownership
Owning a token does not automatically establish that every holder has a direct right to redeem it with the issuer. Eligibility rules, minimum amounts, timing, fees, banking access, or reliance on an exchange or other intermediary can affect whether a holder can actually turn tokens into fiat. A market price near the peg in ordinary conditions is not proof that direct redemption will be available to everyone under stress.
Intermediaries connect the token to the financial system
Issuers, custodians, banks, payment providers, exchanges, and wallets can all be part of the path between a token and usable money. Their operational resilience and dependencies matter. The Federal Reserve’s 2026 analysis points to complex intermediary chains, vertical integration, and growing connections to traditional finance as areas of concern. A disruption at a service provider can affect payments or access even if the blockchain itself remains online.
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What the March 2023 banking stress showed
The banking turmoil of March 2023 is a useful historical example, not a description of any issuer’s present-day reserves. A Federal Reserve retrospective published in December 2025 says banking-industry stress triggered depegging among major stablecoins. It reports that Circle’s cash held as reserves in U.S. financial institutions fell from $11.5 billion on March 6, 2023, to $3.7 billion on March 31, 2023.
The retrospective says the depegs eased after the FDIC, Treasury, and Federal Reserve jointly announced that depositors at Silicon Valley Bank would be fully protected. The episode illustrates how confidence in a token can be affected by conventional banking events: the on-chain transfer system may keep working while doubts about reserve access or redemption change what holders are willing to pay.
Transparency helps, but it is not a guarantee
Reserve disclosures give users evidence to assess what backs a token and what obligations exist. Their usefulness depends on what is disclosed, who provides the information, how often it is updated, and whether it is sufficiently detailed to evaluate reserve quality and liquidity. Disclosure cannot turn weak or illiquid assets into safe, readily available money.
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A BIS working paper adds a nuance: in its model and analysis, more disclosure can increase run risk when it reveals that reserves are perceived as low quality and holders can convert to fiat cheaply. That is a finding about the conditions examined in the paper, not a case against disclosure. It underscores why transparency and the underlying quality of reserves need to be assessed together.
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Technology risks still matter
Calling stablecoins a trust problem is an explanatory framing, not a claim that technology is irrelevant or flawless. Treasury has warned that non-resilient technology or service providers could disrupt a widely used stablecoin payment service. Cybersecurity, operational continuity, and the dependencies among intermediaries can all affect whether users can transfer or redeem tokens when they need to.
Federal Reserve Vice Chair Lael Brainard put the distinction plainly in a 2022 speech: “New technology and financial engineering cannot by themselves convert risky assets into safe ones.” A reliable ledger can support a financial promise; it cannot substitute for safe backing, workable redemption, or sound governance.
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How to assess a stablecoin’s trust chain
Use these questions to compare the evidence for different tokens. They are assessment criteria, not a universal safety ranking or individualized financial advice.
- Reserves: What assets back the outstanding tokens? How liquid and volatile are those assets, especially under stressed conditions?
- Redemption: Who is permitted to redeem directly, at what price, under what eligibility and timing conditions, and through which intermediary? Do not assume every token holder has a direct claim on the issuer.
- Safeguarding and governance: Who controls reserve custody and key operating decisions? What legal protections and oversight apply?
- Disclosure: What is reported about reserves and obligations, by whom, and how often? Treat disclosure as evidence to evaluate, not as a substitute for reserve quality.
- Operational chain: Which issuers, custodians, wallets, exchanges, banks, and infrastructure providers are needed to use or redeem the token? Where are the dependencies?
- Jurisdiction and rules: Which licensing, prudential, consumer-protection, and anti-money-laundering and counter-terrorist-financing rules apply to the issuer and critical providers?
These questions must be answered with current, token-specific information. The evidence discussed here does not establish the present reserves, redemption experience, or legal status of any particular stablecoin.
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The international regulatory picture is not one uniform standard. A 2024 BIS review describes jurisdictions addressing matters including licensing, reserve management, redemption rights, capital, consumer protection, governance, risk management, cybersecurity, and anti-money-laundering and counter-terrorist-financing controls. The rules and their application differ across countries, so a regulatory framework in one jurisdiction should not be treated as interchangeable with another.
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In the United States, a Federal Reserve note published in April 2026 states that the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) was signed into law on July 18, 2025, establishing a formal federal regulatory framework. That dated milestone does not, on its own, establish the implementation schedule, the full requirements of each rule, or how a particular issuer is supervised. For those specifics, consult the enacted law and current guidance from the relevant regulators.
What the market’s growth does—and does not—tell you
The Federal Reserve reported that stablecoin market capitalization grew by about 50 percent during 2025. That figure describes growth during 2025, not a current 2026 market-cap estimate. Growth can indicate increasing use or demand, but it does not establish that any individual token is well backed, readily redeemable, or resilient in a crisis.
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