Stablecoin: what backs the dollar on the blockchain?
A stablecoin (a digital currency pegged to a fixed value, typically 1 token = 1 USD/SGD) isn't safe because it "lives on the blockchain" (a public transaction ledger). It's safer when it has four layers in place: the token can be redeemed 1:1 for real money, the reserve assets are short-term and easy to sell, the reserves are ring-fenced from the company's own capital, and the law forces the issuer to disclose its reserves before the market has to guess.
01. How the 1:1 peg holds
A fiat-backed stablecoin (pegged to and backed by USD, SGD, EUR, etc.) is a very simple balance sheet: reserve assets on one side, issued tokens on the other. When you deposit $100, the issuer receives the $100, buys short-term U.S. Treasury bills (T-bills) or holds cash/bank deposits, and issues 100 tokens. When you redeem 100 tokens for real money, the issuer burns the 100 tokens and returns $100.
02. What do good reserve assets look like?
Good reserve assets aren't just "100%-plus." They must be sufficient, clean, segregated, short-dated, and sellable. An issuer holding $100 of reserves in 20-year bonds can still take a heavy loss if it has to sell in a single day when rates spike.
Reserves must exceed circulating tokens, not "hope for future money."
Assets maturing intraday, overnight, or within weeks beat assets maturing in years.
Reserves must be ring-fenced from the issuer's operating funds with a clear claim in bankruptcy.
03. USDT: the largest, with a big capital buffer and a mixed reserve
According to BDO's Q1 2026 attestation report, Tether International held $191.77B in assets, $183.54B in liabilities, and an $8.23B capital buffer as of March 31, 2026. The vast majority is T-bills (short-term U.S. Treasury bills) and repo (short-term collateralized borrowing/lending), but the reserve also holds gold, Bitcoin, publicly traded equities, other investments, and secured loans.
Strengths
Large liquidity scale, with roughly $141B in combined direct and indirect U.S. Treasury holdings, an $8.23B accounting capital buffer, and a Q1 2026 report attested at the "reasonable assurance" level under the ISAE 3000R standard.
Fine print worth reading
BDO stresses the report is only a snapshot at one point in time, not a full IFRS financial statement (international financial reporting standard); the valuation assumes normal trading conditions, and the reserve holds assets riskier than cash/U.S. Treasury bills.
04. Why does USDT's reserve include gold?
This is the easiest part to misread: USDT pegs at 1:1 to the nominal USD, but that doesn't mean Tether is required to hold its entire reserve as USD cash. Tether's documentation says the token is backed by "reserve assets," and, when a customer is eligible for direct redemption, Tether uses part of the reserve to pay out fiat currency to a bank account. USDT holders have no claim on gold, and they get no benefit if gold's price rises.
Why does Tether want to hold gold?
Tether discloses roughly $20B in physical gold in USDT's reserves as of March 31, 2026, and says this diversification is meant to balance liquidity, resilience, and macro exposure under market stress. Simply put: gold is nobody's liability, has a deep market, and is often seen as a haven asset when inflation or currency risk rises.
Is this a sign of abandoning the USD peg?
There is no official evidence that USDT is preparing to abandon its USD peg. Tether's documentation still describes USD₮ as a USD-denominated token, with the redemption process paying out fiat currency. A more reasonable read: Tether is using gold to protect and grow its own balance sheet while also building out tokenized gold products like XAU₮. USDT holders still only have a claim denominated in nominal USD.
05. How do you check USDT's reserves?
With USDT, you can't just open a block explorer and prove the entire reserve, because most of the reserve sits off-chain: U.S. Treasury bills, repo, bank deposits, gold, loans, and other investments. The practical way to check is to stitch together three layers of evidence: the token count on-chain, Tether's disclosures, and the auditor's attestation report.
| Step | What to do | What it tells you | Limits |
|---|---|---|---|
| 1. Check the token count | Go to Tether's transparency page, check net circulating tokens per chain, and cross-check against the block explorer for the official token contract. | You learn how many tokens have been issued into the market and need backing. Don't confuse tokens "authorized but not issued" sitting in the treasury wallet with tokens actually in circulation. | Daily figures can lag; swaps between chains can shift per-chain balances even though total net issuance is unchanged. |
| 2. Read the reserve report | Download the quarterly financial & reserve report and the independent auditor's report from the reserve reporting section. | Compare total assets, total liabilities, issued digital tokens, the reserve capital buffer, and the asset mix. | This is a snapshot at one point in time, not real-time proof. |
| 3. Read the attestation scope | See what the auditor actually did: obtaining confirmations from banks/custodians, reconciling against the blockchain ledger, checking asset valuations, checking collateral. | You learn which parts were checked by a third party and which parts still rely on the company's own accounting policies. | An attestation report isn't the same as a full financial statement audit; footnotes may fall outside the attestation scope. |
| 4. Stress-test it yourself | Calculate the weight of U.S. T-bills/repo/deposits versus gold/BTC/loans/equities/other investments. | Estimate whether the reserve is liquid enough if a large volume of redemptions hits within a few days. | You can't see intraday liquidity, repo counterparties, real-world haircuts, or the claim on funds if a custodian runs into trouble. |
06. USDC: a cleaner, more transparent reserve - but still bank risk
Circle's USDC follows a more conservative model: the Circle Reserve Fund (a money market fund dedicated to holding short-term assets), U.S. Treasury bills, overnight repo collateralized by U.S. Treasuries, and deposits at regulated financial institutions. Deloitte's March 2026 report shows $77.049B of USDC in circulation and $77.125B in fair value of reserve assets as of March 31, 2026.
07. XSGD: a smaller SGD stablecoin, closer to Singapore
XSGD is a Singapore-Dollar-pegged stablecoin issued by StraitsX. StraitsX says XSGD is backed 1:1 by SGD, the reserve assets sit in segregated accounts at licensed financial institutions, and monthly reserve attestation reports are published by an auditor on the ISCA-approved list. In terms of scale, XSGD is far smaller than USDT/USDC, but it serves a different need: bringing SGD onto the blockchain for payments, transaction settlement, and currency exchange in Singapore/Southeast Asia.
08. Is redeeming USDT for USD hard?
There are two ways to exit a stablecoin: redeeming directly with the issuer or selling on an exchange/secondary market. For retail investors, this distinction matters a lot. You can usually sell USDT on an exchange fairly easily under normal market conditions, but that isn't "direct redemption" in the legal sense. True direct redemption means sending the token back to the issuer and receiving fiat currency like USD/SGD into a bank account.
| Stablecoin | Direct redemption with issuer | Easy for retail investors? | Retail's real-world path |
|---|---|---|---|
| USDT | Tether requires a verified Tether.to account; the minimum redemption is the equivalent of $100,000. Tether's documentation states the redemption fee is the greater of $1,000 or 0.1% of the redeemed amount. | Hard. High minimum amount, must pass KYC/AML/CTF (identity verification, anti-money-laundering, counter-terrorism financing), needs a valid bank account accepted by Tether. | Sell USDT on an exchange for USD/SGD, or swap into USDC/XSGD then withdraw via a bank-supported platform. This is selling on the market, not direct redemption with Tether. |
| USDC | Circle Mint allows 1:1 minting/redemption of USDC, but Circle says Circle Mint is for institutions like exchanges, market makers, wallets, banks, and application companies - not individuals. | More trustworthy than USDT, though not necessarily more accessible. Retail investors outside the EEA typically can't redeem directly with Circle without Circle Mint access; they must use an exchange/partner. | Sell USDC on an exchange, withdraw USD via an exchange/fintech/bank; or use a Circle partner's service. In the EU/EEA there's an added MiCA layer, but it still depends on local processes. |
| XSGD | StraitsX lets verified personal accounts redeem XSGD for SGD and withdraw to a linked bank account. Personal limits: minimum S$10 withdrawal, up to S$200,000/transaction via FAST, S$500,000/day, S$0 fee. | Easiest if you're in the group StraitsX supports. Better suited to Singapore/SGD users than global users. On-chain withdrawals still require a pre-approved list of wallet addresses. | Deposit XSGD into StraitsX, choose to withdraw SGD to a bank. For blockchain transfers, the wallet address must be pre-approved; withdrawing to an SGD bank via FAST can be faster than selling on an exchange if the account is already set up. |
09. Regulation: guardrails that make stablecoins harder to break
Good law can't turn a stablecoin into a risk-free asset. It only sets guardrails: the issuer must be licensed to issue, reserve assets are restricted to high-liquidity assets, the redemption policy is clear, reporting is periodic, anti-money-laundering/sanctions obligations apply, and there's supervisory authority when the issuer runs into trouble.
| Framework | Reserves | Redemption | Key takeaway |
|---|---|---|---|
| US GENIUS Act | 1:1 in USD cash, deposits, short-term U.S. Treasury bills, Treasury repo, government money market funds, central bank reserves, or similarly permitted assets. | Issuers must publish a redemption policy and monthly reserve details. | Brings payment-stablecoin issuers into a federal/state framework; bank-secrecy/AML law applies, with U.S. Treasury/FinCEN/OFAC rolling out rules. |
| MAS SCS | Reserves in the same currency as the peg, low risk, highly liquid, >=100%, segregated custody, audit/attestation. | Par redemption within a maximum of 5 business days. | Only issuers meeting all requirements can carry the "MAS-regulated stablecoin" label. |
| EU MiCA | Asset-referenced tokens and e-money tokens must hold reserve/liquid assets to EU standards and be licensed. | Holders have redemption rights; the EBA has guidance on redemption plans for when an issuer is in crisis. | MiCA turns stablecoins into a regulated product in the EU, no longer just a freely listed token. |
10. Quick comparison: USDT / USDC / XSGD
11. When can it still break?
A stablecoin doesn't break the way a smart contract spontaneously changes its mind. It breaks when the balance sheet or the operating system behind it runs into trouble: reserve assets lose value, the bank/custodian freezes funds, the redemption queue gets clogged, or the market stops trusting the reports.
12. Short conclusion
Good when you need market liquidity, but the reserve structure is more complex and the attestation report needs a close read.
A cleaner reserve, more detailed reporting; still carries bank/counterparty risk, as SVB once showed.
Fits Singapore/SGD needs, closer to the MAS framework; in exchange, smaller scale and liquidity.
The right way to see it: a stablecoin is like a tool close to a money market fund running on the blockchain, not money in a bank account, and not cash either. Good reserves plus good regulation make it harder to break, but they don't erase issuer risk, liquidity risk, legal risk, and operational risk.
Main Sources
- Tether, Q1 2026 attestation press release, BDO attestation report, Mar 31, 2026, transparency page, issuance primer, guide to redeeming Tether for fiat currency, fee schedule, and relevant information document.
- Tether, Tether Gold Q1 2026 press release; Reuters via Investing.com, Tether slows gold purchases for USDT reserves, 1 May 2026; Los Angeles Times/Bloomberg, Why crypto giant Tether is buying gold, 29 Jan 2026.
- Circle, transparency & stability page, USDC attestation report, March 2026, USDC product page, and Circle Mint.
- Circle, press release on resolving $3.3B of SVB reserve risk, March 2023.
- StraitsX, XSGD page and attestation report archive, how StraitsX stablecoins are backed, personal account limits, and SGD deposit/withdrawal limits.
- DefiCare, XSGD reserve attestation summaries, including the Feb 28, 2026 figures.
- Congress.gov, GENIUS Act summary; U.S. Treasury, FinCEN/OFAC proposed rule, 8 Apr 2026.
- MAS, Stablecoin regulatory framework press release; Morgan Lewis summary of MAS SCS requirements, 22 Aug 2023.
- European Banking Authority, Asset-referenced and e-money tokens under MiCA and redemption plan guidelines.
- Federal Reserve, SVB and stablecoin run risk, Dec 2025; BIS, Stablecoins, money market funds and monetary policy.
03 Discussion
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