AION Explained
How Stablecoins Work
A stablecoin is a crypto asset designed to track a reference value, commonly a currency. The mechanism can rely on issuer reserves, overcollateralized positions or algorithmic incentives, each with different failure modes.
Three questions define the structure
Ask who issues the token, what supports its value and how a holder can redeem it. A reserve-backed token depends on the issuer, custodians, reserve assets and redemption rules. A crypto-collateralized token depends on smart contracts, collateral prices and liquidation processes.
- Who controls issuance?
- What assets or rules support the peg?
- Who can redeem, when and at what cost?
A peg is a target, not a guarantee
Secondary-market prices can move away from the target when liquidity falls or confidence changes. Arbitrage may help restore the peg only when participants can access redemption and accept the issuer, market and settlement risks.
Read reserve evidence carefully
Reserve reports differ in scope, timing and assurance. Check which assets are held, their maturity and liquidity, which entity owns them, whether liabilities are covered and whether the report is an audit, an attestation or a management statement.
Operational and legal risks remain
Freezing powers, sanctions controls, banking interruptions, smart-contract defects, bridge failures and changing regulation can affect access even when the market price appears stable. Stable relative to a currency does not mean safe from custody or counterparty loss.
Frequently asked questions
Is one stablecoin equivalent to cash in a bank account?
No. Legal rights, deposit insurance, reserves, redemption access and counterparties differ. A stablecoin must be evaluated under its own terms and jurisdiction.
Primary references
These references define the protocol, product or safety concepts used in this guide. They are provided for verification, not as endorsements.
Educational content only. This page does not recommend buying, selling or holding any asset. Verify current product, tax and regulatory details for your jurisdiction.