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A stablecoin can move exactly as designed on a blockchain and still lose its peg. The ledger records token transfers; it does not guarantee that reserves are sound, that holders can redeem on usable terms, or that the institutions handling the backing will function under stress. Those are central trust questions—alongside, not instead of, technology and cybersecurity risks.
What does “trust” mean for a stablecoin?
A stablecoin is a token intended to hold a stable value, often relative to a fiat currency. For a fiat-referenced token, the peg is not just a feature of the software. It depends on an economic and institutional promise: that the backing exists, can meet redemptions, and can be accessed through a working legal and operational process.
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If holders doubt that promise, they may sell rather than redeem. The token can then trade below its target even while the blockchain continues to process transactions correctly. Federal Reserve Governor Michael S. Barr has highlighted a particular vulnerability in arrangements that promise redemption on demand at par while holding noncash reserves: holders may seek cash faster than those assets can be converted or delivered.
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It is useful to think of confidence as a chain of expectations. Reserve assets must be adequate and liquid; redemption terms must be usable; custody and governance must protect the backing; and the issuer and service providers must keep operating. A failure or doubt at any link can weaken confidence in the peg.
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How can a stablecoin lose its peg if the blockchain keeps working?
Reserves may be uncertain or hard to liquidate
Users need to know what backs the tokens and whether those assets can be sold or accessed when redemptions rise. An asset may have value on paper yet be difficult to turn into cash quickly, or its market value may fall during the same period that holders want to exit. The peg is vulnerable when the value or availability of backing is in doubt.
Redemption may not be equally available to every holder
A market price near the target is not proof that every token holder has a direct claim on the issuer. Access can depend on eligibility, minimums, timing, fees, jurisdiction, and an intermediary such as an exchange or payment provider. If direct redemption is limited or difficult to use, holders may have to sell on a secondary market instead, where the price can diverge from the target.
Governance and custody matter
Confidence also depends on who controls reserves, how they are safeguarded, and who makes critical decisions during stress. Legal protections, oversight, operational controls, and the separation of responsibilities can affect whether backing remains available for token holders.
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Reserve disclosures help users assess what is held and what obligations exist, but disclosure is evidence—not a substitute for liquid, high-quality reserves or a practical redemption path. A BIS working paper’s model and analysis finds that greater disclosure can, in some circumstances, increase run risk when it reveals low perceived reserve quality and conversion to fiat is inexpensive. That is a conditional analytical finding, not an argument for less transparency: it underscores why the underlying assets and redemption arrangements matter as much as the information about them.
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What the March 2023 banking stress showed
The March 2023 episode illustrates how conventional banking exposure can affect confidence in an on-chain token. In a December 2025 retrospective, the Federal Reserve said banking-sector stress triggered depegging among major stablecoins. It reported 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. These are historical figures for that episode, not a statement about Circle’s present reserves.
The same retrospective said the depegs were ameliorated after the FDIC, Treasury, and Federal Reserve jointly announced that SVB depositors would be fully protected. The episode showed that token transfers can remain on-chain while confidence in the backing is affected by banks and broader financial events.
Technology still matters
The trust framing should not be mistaken for a claim that technology is irrelevant or flawless. A token depends on more than its issuer and reserves: wallets, exchanges, custodians, banks, payment providers, and underlying infrastructure can all be part of the path to use or redemption. Outages, cyber incidents, operational failures, or poorly understood dependencies can interrupt that path.
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In a July 2022 speech, then-Federal Reserve Vice Chair Lael Brainard put the distinction plainly: “New technology and financial engineering cannot by themselves convert risky assets into safe ones.” The reverse is also important: sound reserves do not by themselves guarantee resilient software, operations, or intermediaries.
How to assess a stablecoin’s trust chain
When comparing tokens, assess the evidence behind each link rather than treating the peg or a disclosure statement as a complete answer.
- Reserves: Identify the assets backing outstanding tokens. Ask how liquid and volatile they are, and whether the disclosed holdings are adequate for the obligations they support.
- Redemption: Find out who may redeem, at what price, on what schedule, and subject to which eligibility requirements or fees. Identify the intermediary involved, if any; do not assume that every holder can redeem directly with the issuer.
- Safeguarding and governance: Determine who controls custody and key operational decisions, what legal protections apply, and what oversight or controls govern the backing.
- Disclosure: Check what is disclosed about reserves and obligations, who provides the information, and how often it is updated. Evaluate the substance of the backing as well as the availability of disclosure.
- Operational chain: Map the issuers, custodians, wallets, exchanges, banks, and infrastructure providers needed to hold, transfer, or redeem the token. Consider how visible and resilient those dependencies are.
- Jurisdiction and rules: Establish which licensing, prudential, consumer-protection, and anti-money-laundering and counter-terrorist-financing requirements apply to the issuer and critical providers. Rules vary by jurisdiction and should not be treated as interchangeable.
These questions help reveal where confidence depends on a third party or a particular legal arrangement. They do not produce a universal “safest stablecoin” ranking: the relevant evidence changes by token, issuer, jurisdiction, and date, and the institutional sources discussed here do not establish current reserve or redemption conditions for individual products.
What regulation can—and cannot—settle
The U.S. legal framework has changed. A Federal Reserve note published in April 2026 states that the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act, was signed into law on July 18, 2025, establishing a formal U.S. regulatory framework. That dated fact alone does not establish the current implementation schedule, the full content of every applicable rule, or how a specific issuer is supervised. Those details require checking the enacted law and current regulator guidance.
Internationally, the BIS’s 2024 review describes jurisdictions addressing topics including licensing, reserve management, redemption rights, capital, consumer protection, governance, risk management, cybersecurity, and anti-money-laundering and counter-terrorist-financing controls. That is a map of regulatory concerns, not one global rulebook: obligations differ across countries.
Regulation can set safeguards and responsibilities, but a label or legal framework is not itself evidence that a particular token’s reserves are liquid, that a holder can redeem on time, or that every intermediary will remain available during stress. Those still need to be evaluated in the context of the token and the rules that actually apply.
Why the distinction matters as stablecoins grow
The Federal Reserve’s 2026 analysis reported that stablecoin market capitalization grew by about 50 percent during 2025. That is a measure of growth during that year, not a current 2026 growth rate. As use expands, the quality of the trust chain matters beyond an individual holder: stablecoins can become more connected to banks, service providers, and payment activity, increasing the importance of resilience and clear dependencies.
A working blockchain answers a narrow but important question: can the network record and process transactions? It cannot, by itself, answer whether a token’s backing is adequate, whether redemption will work under pressure, or whether the institutions around it can withstand disruption. Assessing those promises requires looking beyond the ledger.
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