Stablecoin redemption: what the holder is actually owed
The word stable does a lot of work in stablecoin, and most of it is unearned by the technology. A token holds its value because somebody has promised to buy it back, and the promise is only as good as the assets behind it and the law governing it. European regulation now specifies both, which turns a marketing claim into a set of obligations a holder can look up.
Regulation (EU) 2023/1114, the markets in crypto-assets regulation, splits the category in a way worth learning because the rights differ. A token that references a single official currency is an e-money token, dealt with in Title IV. A token that references anything else — a basket, a commodity, a mix — is an asset-referenced token, dealt with in Title III. Everything else is a third, more lightly regulated category.
The right that matters
For an e-money token, the holder has a claim on the issuer and a permanent right of redemption at par value. Not at market value, not at the exchange price, and not at the issuer's discretion: at par, on request, and without the issuer charging for the privilege. That single provision is what distinguishes a regulated euro token from an instrument that merely trades near a euro, and it is the first thing to check about any token presented as a cash equivalent.
The obligation is backed by a reserve. The funds received against issued tokens have to be safeguarded rather than used as working capital, with a share of them held as deposits at credit institutions — Article 54 is where that composition is set — and the remainder in highly liquid instruments. The regime for tokens designated as significant is stricter again, and the designation mechanism is in Article 58. Anybody relying on a token commercially should read those two articles rather than a summary, including this one.
| Question | Where to look |
|---|---|
| Which category is this token | Title III for asset-referenced, Title IV for e-money tokens |
| Is redemption at par guaranteed | The e-money token provisions of Title IV |
| What backs it, and where it sits | Article 54 on the composition of safeguarded funds |
| Is it treated as significant | Article 58 and the designation criteria |
| Who authorised the issuer | The issuer's home competent authority, which must be named |
No interest, and why that is deliberate
The regulation prohibits issuers of these tokens from granting interest to holders. This reads as a restriction on a benefit and is better understood as a boundary: an instrument that pays a return on a balance is a deposit or an investment, and both are regulated elsewhere by rules about capital, deposit guarantees and disclosure. Keeping tokens out of that territory is the price of the simpler regime.
It also forecloses the business model most token issuers would otherwise prefer, which is to pass through part of the yield on the reserve. The yield stays with the issuer. That makes the economics of a regulated euro token a matter of float, and float economics are worth understanding before concluding that an issuer's incentives are aligned with a holder's.
What a holder is not owed
Not the deposit guarantee. Funds safeguarded on behalf of token holders are not covered deposits in the sense of the deposit guarantee schemes directive, and conflating the two is the single most common error in consumer-facing material about tokens. The protection is the reserve, the segregation and the supervision — a real framework, and a different one.
Not price stability on an exchange either. A token can trade below par in a stressed market while the redemption right remains perfectly intact, because an exchange price reflects whoever is willing to trade at that moment and redemption reflects a claim against the issuer. The two can diverge, and the gap is exactly the market's view of how easy it is to exercise the claim.
And none of the above is a view on whether any particular token is sound. It is the list of questions that have documentary answers, and the observation that a token whose issuer cannot answer them has told you something without meaning to.