A stablecoin issuer publishes a document about its reserves. It carries an accounting firm’s name and a lot of numbers, and it is widely reported as proof the coin is backed.
Usually it is an attestation, not an audit. Those are different products with different scopes and very different levels of assurance, and the gap between them is where every stablecoin failure has lived.
What an Attestation Actually Says
An attestation reports on a specific assertion made by management, at a specific moment, using procedures agreed in advance.
Typically that assertion is: at this instant, we held assets of this composition and this value. The accountant checks that statement against evidence and reports whether it is fairly stated.
Every part of that sentence is a limit. At this instant — the balance is examined on one date, and says nothing about the day before or after. This composition — as categorised by management. Procedures agreed in advance — the scope is negotiated, not determined by the accountant’s judgement of what needs testing.
What an Audit Adds
A financial statement audit is a broader undertaking with a different objective: an opinion on whether financial statements as a whole are fairly presented.
Reaching it requires understanding the entity’s internal controls, assessing where material misstatement is likely, testing across the period rather than at a moment, and evaluating whether the business can continue operating. The auditor decides what to test.
The practical difference: an attestation can be true and still leave you knowing very little. Assets held on one date tell you nothing about whether they were borrowed the day before, or what happened the day after.
Read the Composition, Not the Total
“Fully backed” is a claim about quantity. What matters under stress is what the reserves are made of, because a stablecoin’s job is to be redeemable immediately and at par, and not every asset can do that.
Cash and short-dated government securities are the strongest case. Deep markets, predictable value, quick to sell without moving the price.
Commercial paper and corporate debt are fine until they are not. These markets can become illiquid precisely when everyone needs liquidity, which is exactly the moment redemptions spike.
Secured lending and repo depend on the collateral and the counterparty behaving as expected under stress.
Other digital assets are the most fragile choice, because they are likely to fall in value at the same time redemptions rise. The correlation is the problem, not the volatility.
The Structural Question: Who Is the Claim Against
This is the one that decides what happens in a failure, and it is rarely on the front page of a reserve report.
Holding a stablecoin generally means holding a claim against the issuer, not ownership of a share of the reserve assets. If the issuer fails, whether you rank ahead of its other creditors depends on how the arrangement was constructed and where.
If the reserves are held in a genuine trust or equivalent structure for the benefit of holders, the position is considerably stronger. If holders are simply unsecured creditors of a company that happens to own some assets, it is considerably weaker — and the reserve report will look identical in both cases.
What to Look For
- Does the document say attestation, agreed-upon procedures or audit? The word is the scope.
- Is it a point-in-time balance or coverage across a period?
- Is the composition broken down by instrument and maturity, or grouped into broad categories?
- Who performed it, and would you recognise the name?
- How often is it published, and has the frequency changed?
- What is the legal structure of the claim — is it stated anywhere at all?
A missing answer is itself informative. Issuers who have solved these questions tend to say so prominently.
Why This Matters for an Ordinary Business
If you accept stablecoins, hold a balance between conversions, or pay a supplier in them, you are holding an issuer’s liability for that period. The reserve question is not academic — it is the question of whether the money in your account is money.
The practical mitigation is boring and effective: hold the balance for as short a time as possible, and do not treat a stablecoin balance as equivalent to a bank balance in your own records. We cover the accounting side in what accepting crypto actually changes for a small business.
Frequently Asked Questions
Is an attestation the same as an audit?
No. An attestation reports on a specific management assertion, usually at a point in time, using procedures agreed in advance. An audit gives an opinion on financial statements as a whole and the auditor decides the scope.
What should stablecoin reserves be held in?
Cash and short-dated government securities behave best under stress because they can be sold quickly without moving the price. Commercial paper, secured lending and other digital assets carry more risk exactly when redemptions rise.
Do I own a share of the reserves?
Usually not. Holding a stablecoin is normally a claim against the issuer. Whether you rank ahead of other creditors depends on the legal structure, which a reserve report does not tell you.
How often should reserves be reported?
More often is better, and a change in frequency is worth noticing. Point-in-time reporting says nothing about the days either side of the reporting date.