Crypto / Plumbing
Stablecoins are money funds with a different rulebook
A dollar token is a promise to redeem at par, backed by a portfolio. Every risk that structure carries has a long and well-documented history.
Strip the vocabulary away and a fiat-backed stablecoin is a fund: it takes dollars, buys short-dated assets, and issues claims that trade at one dollar. Money market funds do the same thing and are among the most heavily regulated products in finance, for a reason that took two crises to establish.
Par is a promise, not a property
A token trades at a dollar because holders believe they can redeem it for a dollar. That belief depends on three things: what the reserves are, who can redeem directly, and how quickly. Small differences in those three produce very different behaviour under stress.
If only large institutional counterparties can redeem at par and everyone else must sell on an exchange, then the exchange price is what most holders actually have. In calm markets the arbitrage holds it near a dollar. In a bad week, the arbitrageur's balance sheet is the binding constraint.
Every run in financial history has been a race between people who can redeem and people who can only sell.
Reserve composition is the whole story
Treasury bills and overnight repo behave one way. Commercial paper, bank deposits above insurance limits, and anything longer dated behave another. Reserves held at a small number of banks introduce a second exposure that has nothing to do with the token: the bank.
Attestations are not audits. A monthly snapshot tells you what was held on one date, which is exactly the disclosure regime that money funds outgrew.
The contagion channel
Stablecoins are now the settlement layer for most crypto trading. A serious depeg does not stay contained: it freezes the venues that quote in it, liquidates collateral priced against it, and reprices everything on the other side of those trades. That is a plumbing failure rather than a price move, and plumbing failures are the ones that surprise people.
What to watch
- Reserve composition and maturity, and how often it is disclosed.
- Who has direct redemption rights, and the minimum size.
- Concentration of reserves at individual banks.
- Secondary market depth: how many dollars it takes to move the price a tenth of a cent.