Stablecoin

The peg is a claim about redemption, not a property of the token. What holds it is the expectation that the issuer will exchange one token for one dollar on demand, so the analysis is a credit analysis of the issuer and its reserves rather than anything about the blockchain.

Reserve composition is the first question: cash and short-dated Treasuries behave differently under stress than commercial paper or secured loans. Redemption rights are the second, and are frequently misunderstood. Tether redeems directly only for approved accounts, with a $100,000 minimum, and Circle only through Circle Mint, which is open to eligible businesses and institutions rather than retail holders. Everyone else exits through the secondary market at whatever the market pays, which is why a token can trade below a dollar while redemption at par is technically available.

USDC fell below $0.90 in March 2023, to lows of roughly $0.87 to $0.88 depending on the venue, when part of its reserve sat at Silicon Valley Bank over a weekend, with the reserve fully intact and the depeg driven entirely by inaccessible redemption.

Algorithmic designs holding no external reserve are a different instrument that shares a name. Terra's UST reached roughly $18Bn before collapsing to near zero in May 2022. The distinction between reserve-backed and mechanism-backed is the single most important one in the category.