Stablecoin Reserves & Attestations
How do you know a stablecoin is actually backed? Separate reserve composition, custody, verification, and redemption.
By Anton Titov, Founder · Plexo Institute
Institutional stablecoin diligence is four questions, not one: what backs the token, where the assets sit, who verifies them, and whether redemption works under stress.
Reading Guide
Four moves that turn "how do I know it is backed?" into a treasurer-grade diligence framework.
A "yes" on one question is not enough. An issuer can have safe assets with weak custody, or strong custody with verification that misses what matters. Treasurers need separate answers for composition, custody, verification, and redemption.
Major regimes set reserve, redemption and disclosure requirements, but their instruments and detailed rules differ. The applicable law, issuer terms and current disclosures are the starting point for diligence.
USDC in March 2023 illustrated a failure mode: uncertainty about access to cash held at a failed bank can affect market confidence even before the final treatment of reserve assets is known. A diligence process should identify concentration and stress-access dependencies, not reserve composition alone.
An attestation and a financial-statement audit are different engagements. The useful question is not their label alone, but the report’s criteria, date, procedures, assurance level, limitations and the entity covered. Regulatory reporting and audit requirements also differ by regime and issuer.
Four Questions for Treasury Diligence
Reserve composition shows what backs the token; custody who controls the assets; attestation what was checked on a date; redemption whether holders can exit through the issuer mechanism.
A treasury team should treat reserve diligence as four linked checks rather than one headline reserve ratio.
Four Checks Decide Whether Backing Holds
Reserve trust fails at the weakest layer: asset mix, custody, verification, or redemption mechanics.
Layer 01
Composition
Cash, T-bills, deposits, repos, and risk assets decide liquidity and credit exposure.
Wrong assets turn a par claim into market risk.
Layer 02
Custody
Bank roster, account control, and segregation decide whether safe assets can move.
Good assets can still get trapped.
Layer 03
Verification
Attestations prove a point in time; audits and controls answer the broader issuer question.
A clean snapshot can miss control weakness.
Layer 04
Redemption
Authorized counterparties, burn mechanics, and fiat payout keep the peg loop real.
A backed token still breaks if exits fail.
| Question | What it asks | Where the answer lives |
|---|---|---|
Composition | What assets back the token? | Issuer disclosure and attestation |
Custody | Where are assets held, and who can move them? | Custodian roster and segregation opinions |
Verification | What third-party report or issuer disclosure supports the stated reserve position? | Current assurance report and its criteria |
Redemption | Who may redeem, under which terms, and how does the route operate under stress? | Current legal terms, operating process and available evidence |
Reserve Composition
Reserve composition, liquidity and legal segregation must be checked under the applicable issuer terms and regime.
Composition is the first filter because it determines whether the backing pool can be liquidated quickly without credit losses.
MiCA distinguishes several token types. For asset-referenced tokens, Article 36 requires a reserve of assets that covers the referenced-asset risk and addresses redemption liquidity risk, with legal and operational segregation from the issuer’s estate. The GENIUS Act defines permitted reserve assets for covered US payment stablecoin issuers, including cash, demand deposits and short-dated US government obligations subject to its conditions.
These rules are not interchangeable, and neither automatically describes every token called a stablecoin. Check the token category, issuer, jurisdiction and current legal status before drawing a reserve conclusion.
Bank-deposit concentration, fund structure, repo mechanics, duration, counterparty exposure, legal segregation and access to liquidity can each matter. A high-level label such as "cash and T-bills" is not a complete answer without the issuer’s current disclosure, custody arrangement and redemption terms.
Reserve Custody
Asset quality alone does not establish operational access, legal segregation or stress readiness.
Circle disclosed that $3.3B of USDC reserves were held at Silicon Valley Bank when SVB failed. The episode affected market confidence before the final treatment of the deposits was clear. The lesson is narrower: a reserve analysis should include access, concentration and contingency dependencies, not only asset labels.
Number of custodians and concentration limits
Bankruptcy-remoteness and jurisdiction-specific segregation opinions
Who can move reserves under ordinary and stress conditions
Geographic distribution and jurisdictional risk
Attestation vs Audit
The title of a report is less important than its actual scope, criteria, date and conclusion.
The practical difference is scope. An attestation may assess defined subject matter; a financial-statement audit addresses financial statements for a reporting period. Both must be read together with their terms, limitations and the issuer’s current disclosures.
| Property | Monthly attestation | Annual audit |
|---|---|---|
What it may cover | Specified subject matter or management assertion at a stated date or period | Financial statements for a stated reporting period |
Assurance | Read the issued report: form and assurance level depend on the engagement | Read the issued report and applicable audit standard |
Scope | Defined by the report’s criteria, procedures and limitations | Broader financial-statement scope, but still defined by materiality and the audit report |
What it does not establish alone | Every operational, custody, legal or redemption risk | Every operational, custody, legal or redemption risk |
A reserve attestation can be valuable evidence, but its meaning comes from the criteria, date, procedures and conclusion in the report. It does not by itself answer every question about custody controls, legal claims, related parties, liquidity access or redemption operations. The phrase "100% attested" is therefore incomplete without the underlying report and current issuer disclosure.
MiCA and the GENIUS Act introduce disclosure, reserve, redemption and supervisory provisions for their respective covered instruments. Their requirements are not identical: for example, the GENIUS Act specifies monthly report examination and a conditional annual financial-statement audit requirement for certain issuers. A counterparty should read the rule that applies to its token and issuer rather than infer a universal audit standard.
Redemption Mechanics Under Stress
A reference-value claim relies on the issuer’s actual redemption terms and the route’s operating availability.
Redemption is where reserve quality becomes operational reality: the assets must be available, transferable, and usable during stress.
A redemption process can include eligibility checks, a token transfer or burn, issuer acceptance, fiat movement and beneficiary crediting. The exact sequence, access, fees, timing and suspensions are issuer- and jurisdiction-specific. If a necessary step is unavailable, secondary-market prices can diverge from the reference value even when reserve assets exist.
Historical episodes can illustrate specific stress paths, but they are not a substitute for current issuer terms and operational evidence. The USDC/SVB episode illustrates how bank-access uncertainty can affect confidence. A diligence process should ask how the issuer documents access, eligibility, liquidity and contingency arrangements under current conditions.
Circle vs Tether Transparency Gap
For treasury diligence, disclosure quality and assurance scope are part of the product assessment.
For institutions, clearer and current documentation can reduce uncertainty in counterparty review. It does not replace independent legal, operational and risk assessment.
Issuers publish different combinations of reserve composition, assurance reports, custody information, legal terms and regulatory disclosures. The depth, timing and comparability of those materials can change. For a regulated counterparty, review the current documents for the named issuer and asset rather than use a permanent ranking of disclosure quality.
Counter-Arguments & Limitations
Where the diligence framework may overstate current practice.
The framework is a standard for material exposure, not a claim that every current treasury workflow already runs this full checklist.
Many counterparties rely on published attestations and issuer disclosures. The counterpoint is that material exposure may require further assessment of legal terms, custody and redemption operations. Regulation can raise disclosure and control requirements, but it does not make one universal checklist legally complete.
The point is not that an attestation is inherently inadequate or non-compliant. It has a defined purpose. A counterparty should avoid treating it as proof of matters that its criteria and procedures do not cover. Different regimes now impose different reporting, reserve and supervisory obligations for their covered instruments.
About This Explainer
Scope, disclosure, and method.
Plexo Institute uses the four-question framework—composition, custody, verification and redemption—as an analytical checklist. It does not certify any issuer, reserve report, custodian or redemption route.
Data vintage: 2022-2026. Framework drawn from MiCA, GENIUS Act reserve and reporting provisions, assurance standards, Circle and Tether public disclosures, and FSB recommendations. Issuer disclosures and legal requirements can change; verify the current primary document for the route under review. This explainer is descriptive and does not constitute audit, legal, regulatory or compliance advice.
Relevant Reading
References
7 references- USDC Transparency — Circle
- Reserves Reports — Tether
- MiCA Regulation 2023/1114 — European Union
- S.1582 - GENIUS Act — US Congress
- AT-C 205 and ISAE 3000 Attestation Standards — AICPA; IAASB
- An Update on USDC and SVB — Circle
- High-level Recommendations for Global Stablecoin Arrangements — Financial Stability Board