Stablecoin risk: a checklist of what can break

Why does a checklist help with stablecoin risk?

A stablecoin looks simple on a screen: one token, one dollar. Behind that price sit reserves, banks, redemption terms, code, and legal rules, and a break in any one layer can move the price. A checklist forces the review of every layer, so a strong layer does not hide a weak one. It also gives you a record to compare over time.

Past events hit different layers. USDC held $3.3 billion at Silicon Valley Bank in March 2023, a bank layer problem. UST broke in May 2022 through its design, a code and incentive problem. A reader who knows the layers can place a new headline quickly and ask the right question, instead of reacting to the price alone.

Can stablecoin reserves cover every token and convert to cash fast?

Checks 1 to 3 cover reserves. Check 1 asks for the reserve mix: bonds, deposits, loans, or other assets. Check 2 asks for the date of the latest report, since an old report describes an old balance sheet. Check 3 asks who reviewed it, and whether the review is an attestation of balances or an audit of statements. Green means recent, detailed, and externally reviewed.

Look for a buffer too. The difference between assets and liabilities shows how much loss the reserves can absorb before holders face a shortfall. A larger buffer helps, yet a buffer made of assets that sell slowly helps less in a rush. Read the buffer together with the mix. Red means an old report, a vague mix, or a missing outside review.

Can the banks and custodians behind a stablecoin hold up?

Checks 4 and 5 cover banks. Check 4 counts how many banks hold the cash and what share sits at the largest, a lesson of the USDC episode, when 6 banking partners limited the exposure at one bank to about 8% of reserves. Check 5 asks how the issuer moves cash over weekends, since crypto trades without pause while banks close.

Custodians matter in the same way. Government bonds and cash sit with a custodian, and the quality of that arrangement decides whether assets stay reachable in a failure. Ask for names, locations, and the legal structure that protects reserves from the issuer’s creditors. Green means several named partners, with no single point of failure.

Can holders redeem a stablecoin when the market is in stress?

Check 6 covers redemption. Ask who may redeem directly, at what minimum size, with what fees, and how quickly. Direct redemption anchors the peg, because it lets arbitrage pull the price back to 1 dollar. When only large clients can redeem, most holders depend on exchange liquidity, and a stress event shows the gap.

Check 7 covers the exit through venues. Look at the depth of the order book for the token against other assets, and at the spread between venues. A deep, tight market suggests that sellers find buyers near 1 dollar. A shallow market can drift even when reserves are sound, as thin books amplify every sale. Red means narrow access and shallow depth.

Can the code and collateral of a stablecoin withstand a crash?

Check 8 covers code and collateral. Crypto-backed designs lock other coins in smart contracts, and algorithmic designs rely on a sister token. Ask what the collateral is, how much extra value is locked, which price feeds trigger liquidations, and whether outside parties reviewed the code. A design that needs a rising market to hold its peg earns a red reading.

Check 9 covers yield. Ask who pays any return linked to the token and what happens to demand when the payment stops. Anchor paid a 19.45% yield on UST deposits in 2022, and mass withdrawals came before the collapse, according to Wikipedia. A return funded by new money or by a subsidy marks a dependency on confidence, so it earns an amber or red reading.

Can legal rules and exchanges support the stablecoin peg?

Check 10 covers legal status. Identify the regime that covers the issuer: MiCA authorisation in the European Union, GENIUS Act categories in the United States, or local rules elsewhere. Look for a named supervisor and published reserve and redemption rules. Authorisation leaves some risk in place, and it adds a point of accountability for the holder.

Venue behaviour matters in a stress event. Coinbase halted conversions between USDC and US dollars in March 2023, according to Wikipedia, which shows that a trading platform can pause an exit route. Read the stated policy of your platform on pauses and delistings before you rely on it. Holders in Singapore, ASEAN, or Hong Kong should add the local regime that covers each platform.

How do you turn the stablecoin risk checklist into a score?

Give each check a green, amber, or red reading, with a short note and a date. Count the reds and ambers by layer. Two reds in the same layer mark that layer as the weak link, whatever the other layers show. Three or more reds across the list call for a closer review before the token carries any treasury balance.

Repeat the checks each quarter and compare the readings. This page is general information, not investment advice. For a structured score across your whole crypto exposure, the Λ simulator gives a first estimate, and a 30-minute pre-diagnostic with EQOS Asia applies the method to your treasury in Singapore, ASEAN, or Hong Kong.

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About the author

Stéphane Jambu

President, EQOS Forecast Asia

Stéphane Jambu leads EQOS Forecast Asia and works as a consultant in e-commerce, search visibility, and AI. LinkedIn profile