Stablecoin Legislation
Laws setting who may issue a stablecoin, what assets must back it, and what holders are entitled to redeem.
Frameworks converge on a similar set of requirements: the issuer must be licensed or chartered, reserves must be held one-for-one in low-risk liquid assets such as short-dated government debt and central bank deposits, reserves must be segregated from the issuer's own funds, composition must be reported at regular intervals, and holders must be able to redeem at par within a defined period. Many regimes also restrict paying interest to holders, in order to keep the instrument a payment tool rather than a deposit substitute, and impose additional requirements on tokens that grow large enough to matter for financial stability. The European Union's electronic money token category under MiCA is a fully applicable example, with authorization, reserve, and redemption obligations. Algorithmic designs that rely on a second token rather than reserves generally fall outside the definitions such laws use.
In practice
Under MiCA, an electronic money token issuer must give holders a right to redeem at par at any time, and must hold reserves that are segregated from the issuer's own assets.
The common misunderstanding
That legislation guarantees a token will hold its value, when reserve and redemption rules constrain the issuer but cannot stop a token from trading below par in the secondary market during stress.