Fiat-backed stablecoins such as USDC maintain a 1:1 US dollar peg through a redeemable claim backed 100% by cash and cash-equivalent reserves, paired with a mint-on-deposit and burn-on-redemption mechanism. The Federal Reserve notes this same redemption channel becomes a structural fault line: once holders expect a stablecoin to lose value, the incentive to redeem for collateral can turn into a run.
How Do Stablecoins Achieve a 1:1 Dollar Peg?
The Federal Reserve classifies stablecoins as cryptocurrencies that peg their value to a real-world asset, typically the US dollar CITE:E6. Circle states that USDC is a regulated digital currency that can be redeemed 1:1 for US dollars CITE:E1. Together, these two framings describe the same structure from opposite sides: a regulatory definition of what a stablecoin is, and an issuer's operational promise of what holding one entitles you to.
What Reserve Assets Back the 1:1 Redemption Promise?
Circle backs USDC 100% with highly liquid cash and cash-equivalent assets CITE:E2. Circle further discloses that the underlying Circle Reserve Fund's portfolio can contain short-dated US Treasuries, overnight US Treasury repurchase agreements, and cash CITE:E3. That portfolio is custodied at The Bank of New York Mellon and managed by BlackRock CITE:E3. The composition matters for the peg because each reserve component carries a different liquidation timeline: cash is available immediately, overnight repo converts to cash within a day, and short-dated Treasuries require a sale or maturity before redemption proceeds can be delivered.
How Do Minting and Redemption Mechanics Keep the Peg Stable?
Circle mints new USDC only after a business deposits an equivalent amount of US dollars into its Circle Account CITE:E4. On the reverse side, Circle explains that when a business wants to exchange USDC for US dollars, it deposits the USDC into its Mint account and requests to receive US dollars CITE:E5. This one-for-one deposit-to-mint and deposit-to-redeem flow is what keeps the peg mechanically tied to the 100% reserve described above CITE:E2CITE:E4CITE:E5: supply expands only against incoming dollars and contracts only against surrendered tokens, so the outstanding USDC balance is designed to track the dollar reserve balance at all times.
What Run Risk Threatens the 1:1 Peg?
The Federal Reserve warns that stablecoin holders have an incentive to rush redemptions once they expect a stablecoin to lose value CITE:E7. In the Federal Reserve's own words, "stablecoin holders have an incentive to request redemption of their stablecoins in an attempt to recover the collateral" once depreciation is expected CITE:E7. That incentive structure collides directly with the reserve composition described above: cash and overnight repo can settle redemptions quickly, but a wave of simultaneous redemption requests would still need to be matched against the short-dated Treasury and repo positions Circle discloses CITE:E3, not against instantly available cash alone.
What This Means
The same redemption mechanism that keeps USDC's supply pegged to its 100% reserve during normal conditions CITE:E2CITE:E4CITE:E5 is the mechanism the Federal Reserve identifies as the trigger point for a run once holders expect depreciation CITE:E7. The peg's stability therefore rests less on the 100% backing ratio in isolation and more on whether the Circle Reserve Fund's mix of cash, overnight repurchase agreements, and short-dated Treasuries CITE:E3 can be converted to dollars fast enough to meet redemption requests CITE:E5 if they arrive together rather than gradually.
Author's Take・EffectStory 編輯部
The mechanism laid out here ties USDC's peg to a simple accounting identity: mint only against deposited dollars, redeem only against surrendered USDC, and hold the 100% reserve in short-dated Treasuries, overnight repo, and cash custodied at The Bank of New York Mellon and managed by BlackRock. That design holds the peg mechanically sound as long as redemption requests arrive gradually enough for the Reserve Fund to convert matching Treasury and repo positions into cash. The Federal Reserve's own warning marks the structural fault line: once holders expect depreciation, the incentive to redeem for collateral becomes self-reinforcing, and a reserve built for orderly, one-at-a-time redemptions must instead absorb a simultaneous wave of them. The indicator worth watching is not the 100% backing ratio by itself, but how quickly the Reserve Fund's Treasury and repo holdings can actually convert to cash under redemption pressure.