How stablecoins maintain their peg
Stablecoins usually hold their peg through reserves and arbitrage. Many fiat-backed issuers publish attestations, and an attestation is not a full audit.
Vahe HakobyanEditor-in-chief
Updated Oct 5, 20263 min readFact-checked
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You will learn how reserves, arbitrage, collateral and supply rules hold a stablecoin near its peg. You need the issuer's public reports and the market price.
What keeps a stablecoin pegged?
A stablecoin holds its value because the issuer exchanges tokens for reserves, and traders can profit from small price gaps. For many fiat-backed coins, only approved partners can mint or redeem tokens directly. Ordinary traders mostly buy and sell on the open market. Fiat-backed coins hold government currency assets in reserve, crypto-backed coins hold other cryptocurrencies as collateral, and algorithmic coins hold no reserves or only partial reserves.
How does the peg hold step by step?
Fiat-backed coins rely on reserves held by a custodian. Crypto-backed coins rely on collateral and automatic liquidation. Algorithmic coins rely on supply rules and incentives. These steps show what to check.
- 1Read the reserve reportMany large fiat-backed issuers publish attestations. They list short-term assets such as government debt, commercial paper, repo agreements and bank deposits.
- 2Compare reserves with tokensAn attestation shows a snapshot. It is not a full audit or a government guarantee.
- 3Check the collateral ratioCrypto-backed stablecoins hold other cryptocurrencies as collateral. They keep more collateral than the tokens issued.
- 4Watch the liquidation thresholdIf collateral value falls below a set level, the smart contract sells collateral automatically. That defends the peg.
- 5Track algorithmic supplyAlgorithmic stablecoins hold no reserves or only partial reserves. They use algorithms to balance supply and demand, often through mint and burn incentives.
What should you watch after you hold stablecoins?
A depeg happens when market stress, reserve doubts, or broken arbitrage push the price from the peg. Redemption delays are a warning sign. Algorithmic coins can stay depegged if confidence does not return.
Frequently asked questions
No. The peg is a target, and the market price can trade a little above or below it, especially when markets are stressed or trading is thin.
A depeg is when the price moves away from the target and stays there. A fiat-backed coin can often recover if redemptions keep working, but an algorithmic coin can stay depegged if confidence does not return.
Usually no. FDIC insurance covers bank deposits, not stablecoin tokens.
Yes. Many issuers can freeze or blacklist tokens they control, usually to follow sanctions or law enforcement rules.
