Stablecoins explained

Fiat-backed stablecoins hold reserves — cash and short-dated government debt — against the tokens in circulation, and allow approved participants to mint and redeem at par. That redemption right is the arbitrage engine: if the token trades below one dollar, redeeming at par is profitable, and buying pressure closes the gap.

Everything else is a variation on how credible that promise is. Algorithmic designs that tried to hold a peg without full reserves have repeatedly failed under stress, which is why the market consolidated around straightforwardly reserved tokens.

USDT is the largest by circulation and the deepest in trading pairs, so it is often the cheapest asset to move size in. USDC is favoured by institutions for its reserve disclosure and its regulatory posture. EURC matters to European users for a plain reason: it is euro-denominated, so a European business avoids taking dollar exposure just to hold value on-chain.

All three exist on multiple blockchains, and the same token on different networks is not interchangeable. Sending USDC on the wrong network is one of the most common ways funds are lost — always match the network on both sides before sending.

A reserve report should state the composition — how much cash, how much in short-dated government debt, how much in anything else — its date, and who produced it. Concentration in longer-dated or less liquid instruments is what turns a redemption wave into a problem.

Check the frequency too. Monthly attestations from a recognised firm are meaningfully stronger than an annual statement, because a peg is a claim about right now, not about last December.

Pegs slip for two reasons. The first is a reserve problem, real or feared, where holders doubt full redemption. The second is a plumbing problem: reserves are fine but redemption is temporarily blocked — a banking partner fails, or a network is congested — and the secondary market prices in the friction.

The second kind usually resolves once redemption reopens, but you cannot tell which kind you are in while it is happening. Holding a single stablecoin as your entire cash position concentrates that uncertainty unnecessarily.

MiCA introduced authorisation and reserve requirements for asset-referenced and e-money tokens issued or offered in the EU, including reserve composition, redemption rights at par and disclosure obligations. Several venues delisted non-compliant tokens for European users as the rules took effect.

For European holders the effect is a smaller, better-documented set of options — and a genuine reason to prefer a euro-denominated token when the underlying business is euro-denominated.