A stablecoin may target a dollar value, but that does not make it a bank deposit or guarantee that you can turn it into cash when you need it. Before holding one—or using one to earn income—check three separate things: what backs the coin, who can redeem it with the issuer, and how you would actually exit your position.
In brief: A stablecoin can lose its peg or become hard to sell even if its issuer says it has adequate reserves. Exchanges, custodians, wrapped tokens and DeFi protocols add risks of their own. If you also borrow against BTC or ETH, a fall in your collateral’s value can trigger liquidation regardless of whether the stablecoin holds its peg.
What does a stablecoin promise?
Stablecoin designs differ. An issuer-backed payment stablecoin generally relies on assets held by its issuer and a process for redeeming coins. A crypto-collateralized stablecoin relies on crypto posted as collateral and rules—often implemented in smart contracts—to respond when that collateral changes value. Some designs rely heavily on incentives to maintain a peg rather than readily redeemable reserves. The name “stablecoin” does not tell you which arrangement you hold.
Three prices or rights can diverge: the coin’s target price, its price on an exchange, and an eligible holder’s ability to redeem with the issuer. For example, a hypothetical coin trading at $0.99 might still be redeemable for $1 by someone who qualifies for direct issuer redemption on those terms. A coin trading at $1 does not, by itself, prove that you can redeem it for cash. The relevant terms depend on the issuer, your holding arrangement and the platform you use.
How depegs, redemption delays and reserves affect access to cash
A depeg is a move away from the target market price. A redemption problem means an eligible holder cannot obtain the promised assets on the expected terms or timeline. If you hold through an exchange, you may instead depend on that exchange’s withdrawal and trading arrangements. Commissioner Caroline Crenshaw of the SEC has noted in her April 2025 individual statement that intermediaries can affect retail holders’ direct redemption rights. Her discussion, which is not an agency rule, highlights why you should check the rights attached to your particular coin and account.
Market size does not settle those questions. The Federal Reserve reports that stablecoin market capitalization grew by about 50% during 2025. More widespread use can make it more important to understand what happens when many holders seek cash at once; that report does not establish a universal redemption deadline.
Reserves matter both for their value and for how readily an issuer can use them to meet requests. Cash and short-term Treasuries may be easier to convert than less liquid assets, but even high-quality reserves do not guarantee immediate access for every holder. Read the issuer’s disclosures for the assets held, where they are held, any claims against them, reporting frequency and the redemption process. A proof-of-reserves snapshot may not answer all of those questions. For discussion of reserve liquidity and run risk, see Stablecoins in 2025: Developments and financial stability implications — Federal Reserve. On the limits of reserve snapshots and retail access, see “Stable” coins or risky business? — U.S. SEC (Crenshaw statement); it presents Commissioner Crenshaw’s views, not an agency rule.
Exchanges, custodians and wrapped tokens add another layer
Holding a coin through an exchange or custodian is different from holding it in a wallet you control. Ask who controls the keys, who owes you a withdrawal, whether the platform holds the coin it displays, and what happens if it restricts withdrawals. Self-custody avoids some intermediary exposure but puts more responsibility for key security and backups on you. Key loss or compromise can cause permanent loss; possible recovery depends on the wallet and custody arrangement.
A wrapped or wallet-branded token may also depend on an underlying stablecoin, another issuer or a bridge. Trouble at one layer can affect the product you hold even if its name looks different. Before using a wrapped coin, identify the underlying asset, the entity responsible for redemption and any bridge or contract needed to exit.
A joint statement by the OCC, Federal Reserve and FDIC, available on the OCC website as OCC guidance on crypto-asset safekeeping, addresses crypto-asset safekeeping by banking organizations. It explains how existing laws, regulations and risk-management principles apply to safekeeping; it does not create new supervisory expectations. Its discussion of key management, third-party oversight and contingency planning also provides useful questions to ask when assessing a custody arrangement.
What changes when you lend stablecoins or borrow against BTC or ETH?
Holding a stablecoin is not the same as depositing it in a lending protocol or liquidity pool. In a lending position, the rate paid to depositors comes from the arrangement’s borrowers and rules; your outcome also depends on contract security, collateral management and the ability to withdraw. In a liquidity pool, fees must be weighed against changes in the value of your position and, where relevant, impermanent loss. Neither a stable peg nor advertised fees guarantee a positive net result.
Stablecoins can be used in lending or leveraged strategies, as the 2021 Treasury report discusses. Keep the risks separate: an issuer’s reserve or redemption problem affects the coin; a lending-platform failure or contract exploit affects the position where you placed it. Neither failure requires the other to occur.
If you borrow against BTC or ETH and receive stablecoins to deploy, you also owe interest and face collateral risk. A drop in the crypto collateral’s price can bring a loan to its liquidation point while your stablecoin position is tied up elsewhere. Our guide to crypto loan liquidation explains that mechanism in more detail. Borrowing does not change a liquidity pool’s inherent impermanent-loss mechanics.
Consider holdings, debt, financing costs and possible exit delays together, rather than judging a position by its quoted rate. Portfolio tools and a portfolio-aware AI coach can help frame questions about collateral and adverse-price scenarios; they cannot prevent liquidation or guarantee that funds will be available when needed.
What do U.S. rules cover?
The U.S. GENIUS Act was enacted on July 18, 2025. It sets a framework for permitted payment stablecoin issuers that includes eligible reserves, at-least-one-to-one backing, public redemption policies and monthly reserve disclosures. It prohibits an issuer from paying yield solely for holding or using a payment stablecoin; that is not a blanket prohibition on separate third-party arrangements, which carry their own risks. The Act’s effective date is the earlier of January 18, 2027, or 120 days after implementing final regulations. It does not set a universal two-business-day redemption deadline. The enacted text is available from Congress.
A July 11, 2025 Congressional Research Service overview, hosted by Congress, discussed a bill’s proposed requirements for specific reserve assets before enactment. That overview described a bill, not requirements already in effect; the enacted law and its effective-date provisions govern what was passed and when it takes effect.
Rules and redemption rights vary with the coin, issuer, intermediary and jurisdiction. The 2021 Stablecoin report — U.S. Department of the Treasury also discusses illicit-finance risks in cross-border stablecoin use. Check the terms and rules that apply to your own arrangement instead of assuming that U.S. issuer rules govern every token or platform.
A practical stablecoin-risk checklist
- Identify the coin: Who issues or governs it, and what mechanism supports its target price?
- Read redemption terms: Who is eligible to redeem directly? What are the stated steps, minimums, fees and timelines? How would you obtain cash?
- Inspect reserve disclosures: What assets back the coin, where are they held, how often are they reported, and what does an independent review actually cover?
- Map intermediaries: List any exchange, custodian, wrapper, bridge or protocol between you and the underlying asset. Check what each one owes you.
- Check the exit: Could you withdraw or sell on the chain and platform you plan to use if trading thins or withdrawals pause?
- Count the whole position: Add exposure across wallets, platforms and pools. If you have borrowed against BTC or ETH, include interest, collateral risk and a scenario in which the stablecoin position is not readily accessible.
A useful final test is to ask what you would do if you needed cash while both the coin’s market and your chosen platform were under stress. If the answer depends on a redemption right you do not have—or on a withdrawal timeline you have not checked—learn the terms before committing funds.
FAQ
Is a stablecoin protected like a bank deposit?
No. A payment stablecoin is not itself an FDIC-insured bank deposit. Do not assume that reserves held at a bank give coin holders deposit insurance or direct access to that bank’s funds.
Can a stablecoin lose its dollar peg?
Yes. Its market price can move below or above its target. Reserve quality, redemption access, market liquidity and the coin’s design can all matter. A displayed $1 price alone does not establish that redemption works for you.
How quickly can I get cash during market stress?
There is no single timeline for every stablecoin holder. Direct issuer redemption terms may differ from an exchange sale or platform withdrawal, and access can worsen under stress. Check your actual route to cash, including eligibility, fees and possible restrictions, before relying on it for a near-term need.
Does a stablecoin holding its peg make a DeFi position safe?
No. A lending position can still face contract or platform failure, and a pool’s value can change despite the stablecoin’s peg. If the position is funded by a BTC- or ETH-backed loan, collateral liquidation and interest are additional risks.