Stablecoins, RWA & Tokenization

What is counterparty risk in a stablecoin?

Counterparty risk in a stablecoin is the chance that the issuer or the institution holding its reserves fails to honour the promise to redeem each token for the value it represents. A stablecoin pegged to the dollar relies on the issuer actually holding cash or equivalents, and on the bank custodying those reserves staying solvent. If a reserve bank fails or the issuer cannot meet redemptions, the peg can break, as happened briefly to USDC in March 2023. Reading who holds the reserves, and where, tells you how much of this risk you are carrying.