They achieve this by pegging their value to reserves like fiat currencies or commodities. Stablecoins are engineered to maintain a fixed exchange rate, typically one-to-one, with the underlying asset.

What does "stability" mean? At its core, stability demands three pillars:

Reliable collateral: The tangible assets that back the token.

Transparency: The ability for anyone to independently verify reserves.

Consistent peg maintenance: Robust safeguards against depegging, where a stablecoin's market value strays from its fixed ratio with the underlying asset.

Without these foundational elements, stablecoins are little more than speculative instruments masquerading as safe harbors. In 2022 alone, billions in value evaporated when supposedly "secure" stablecoins lost their pegs, meaning their market prices diverged significantly from their intended 1:1 ratio with an underlying asset — prompting an unsettling question: Can digital assets ever be genuinely stable without demonstrable and independently audited backing?

The need for reliable asset-backed models

Recent market events have exposed severe fundamental weaknesses in privately issued stablecoins. These tokens often rely on opaque mechanisms, inadequate audit practices or collateral that investors cannot independently verify.

These shortcomings repeatedly led to sudden "depegging" events, such as the collapse of Iron Finance's TITAN token in 2021. The overleveraged algorithmic system collapsed to near zero, wiping out billions in liquidity.

TerraUSD's meltdown in 2022 also highlighted a similar vulnerability, with the stablecoin's value disintegrating quickly, intensifying doubts about algorithmic models lacking transparent reserves.

Meanwhile, partially collateralized and so-called "fully audited" stablecoins have faced scrutiny for inconsistent disclosure practices. Even well-known issuers must constantly prove their reserves are sufficient and legitimate.

These issues primarily stem from insufficient oversight and ambiguous collateral management practices by private issuers. Investors typically have limited means to independently verify reserves, fueling persistent doubts about whether the stated backing genuinely exists or whether tokens are properly collateralized.