USDC’s safety is a complex issue, not a simple yes or no. While it enjoys a strong reputation among stablecoins, no stablecoin is truly “risk-free.” Its large market capitalization and long operational history (over six years, settling over $12 trillion in transactions) are positive indicators of stability and adoption. However, these factors don’t eliminate all risks.
Key Considerations Regarding USDC Safety:
- Reserve Composition and Transparency: Circle, the issuer, publishes regular attestations of USDC reserves. Scrutinize these reports to understand the backing assets. While largely USD-denominated, understanding the specific composition (e.g., cash, short-term treasuries, other assets) is crucial. Changes in the reserve composition or the auditing firm’s independence can impact trust.
- Regulatory Risk: The regulatory landscape for stablecoins is rapidly evolving. Changes in regulations could impact USDC’s operations, potentially impacting its peg to the USD. This is a significant systemic risk affecting all stablecoins.
- Smart Contract Risk: While less likely with established projects like USDC, vulnerabilities in the underlying smart contracts could theoretically be exploited. Review independent security audits of the USDC contract.
- Counterparty Risk: Circle itself carries operational risk. A significant financial or operational event impacting Circle could affect USDC’s stability.
- Depegging Risk: Although unlikely, a sudden and widespread loss of confidence could trigger a depegging event, whereby USDC’s price deviates from its $1 peg. This is a inherent risk in all stablecoins and is driven by market sentiment and liquidity conditions.
Comparison with other stablecoins: While USDC boasts a large market cap and operational history, it’s important to note that other stablecoins, such as Tether (USDT), also have considerable market presence despite facing more scrutiny regarding reserve transparency. The relative safety of one stablecoin against another is a matter of ongoing debate and requires careful due diligence.
Diversification: To mitigate risk, it is advisable to avoid over-reliance on any single stablecoin. Diversifying across multiple stablecoins with different backing mechanisms and levels of transparency is a prudent strategy.
Is it safe to keep money in stablecoins?
Treating stablecoins as a safe haven for significant sums is financially reckless. The assertion that they’re “backed by nothing” is a simplification, but it highlights a crucial risk. While some stablecoins maintain reserves to supposedly peg their value to a fiat currency (like the US dollar), the nature and transparency of these reserves vary wildly. Audits are often infrequent or lacking entirely, leaving investors vulnerable to unforeseen events like bank runs or manipulation.
The collapse of TerraUSD (UST) serves as a stark reminder. Its algorithmic design, intended to maintain parity with the dollar, spectacularly failed, resulting in massive losses for holders. This highlighted the inherent volatility even within the “stable” cryptocurrency sector. While other stablecoins utilize different methods, such as backing with reserves of US dollars or other assets, the risk of de-pegging or insolvency remains a significant concern. The lack of robust regulation further exacerbates this vulnerability.
Therefore, using stablecoins for short-term transactions between exchanges is a viable strategy, minimizing exposure to price fluctuations. However, holding large amounts in stablecoins for extended periods carries considerable risk. The potential for sudden devaluation is too substantial to ignore. Diversification across various assets and a thorough understanding of the specific mechanisms behind each stablecoin are paramount before investing any significant amount.
Consider the following before investing in stablecoins:
• Transparency of reserves: Are the reserves fully disclosed and regularly audited by reputable firms?
• Collateralization: What assets back the stablecoin? Are they sufficiently liquid and secure?
• Regulatory oversight: Is the stablecoin subject to any regulatory framework?
Failing to address these points significantly increases the likelihood of substantial financial losses.
Why is USDT being delisted?
Crypto.com’s delisting of USDT and nine other tokens in Europe by January 31st, 2025, isn’t surprising. It’s a direct consequence of the EU’s MiCA regulations, designed to bolster investor protection and market integrity within the crypto space. This isn’t a reflection of USDT’s inherent value or stability (though that’s always a subject of debate), but rather a regulatory compliance move.
Key Implications:
- Reduced Liquidity: Expect reduced trading volume for USDT on Crypto.com’s European platform leading up to the delisting date. This could impact arbitrage opportunities and potentially widen spreads.
- Portfolio Adjustments: European-based traders using Crypto.com will need to adjust their portfolios accordingly, potentially transferring USDT to other exchanges before the deadline. Consider transaction fees and potential delays.
- Regulatory Scrutiny: This highlights the increasing regulatory pressure on stablecoins across the globe. Expect similar actions from other exchanges in the EU and potentially globally as regulatory frameworks mature.
Beyond Crypto.com: While this specifically targets Crypto.com, it sets a precedent. Other exchanges operating in Europe may face similar decisions, underscoring the evolving regulatory landscape. It’s crucial to stay informed about updates from your preferred exchanges and understand the implications of MiCA and similar regulations in other jurisdictions.
Consider Alternatives: Explore alternative stablecoins or fiat on-ramps to ensure uninterrupted trading activities within the EU following the delisting.
Has USDC ever depegged?
USDC is a stablecoin, meaning it’s designed to always be worth $1. However, this isn’t always the case. Last March, when Silicon Valley Bank (SVB) went bankrupt, USDC briefly lost its peg to the dollar.
What happened? A significant portion of USDC’s reserves – about $3.3 billion – were held in SVB. When the bank failed, those reserves became inaccessible, causing the value of USDC to drop below $1. This showed that even stablecoins, which are supposed to be stable, can be vulnerable to risks if their reserves aren’t properly diversified and managed.
What is a stablecoin? Stablecoins aim to maintain a consistent value, usually pegged to a fiat currency like the US dollar. They are often used as a bridge between the volatile crypto market and more stable traditional finance. Different stablecoins use various methods to maintain their peg, some using reserves, others using algorithms.
What are reserves? Reserves are assets held by a stablecoin issuer to back the value of its tokens. Ideally, these reserves should be easily convertible to cash and sufficiently liquid to meet redemption demands. The SVB incident highlighted the importance of transparency and diversification in reserve management.
What does this mean for you? This event showed that even stablecoins are not completely risk-free. While USDC recovered its peg relatively quickly, it underscores the need to understand the risks associated with any investment, including stablecoins. Always research the backing mechanisms and risk management practices of any stablecoin before investing.
What are the regulatory risks of stablecoins?
Stablecoins aim to be digital currencies with stable value, usually pegged to a fiat currency like the US dollar. However, several regulatory risks exist:
- Liquidity Issues: Imagine a bank run, but with a stablecoin. If many people try to redeem their stablecoin for the underlying asset (like USD) at the same time, the issuer might not have enough to cover everyone. This can lead to a collapse of the stablecoin’s peg and massive losses for holders.
- Scalability Problems: Processing a huge number of stablecoin transactions quickly and efficiently can be a challenge. If the system can’t handle the volume, it can lead to delays and increased transaction costs, undermining the stablecoin’s usefulness.
- Volatility (despite the name!): While the goal is stability, unforeseen events (like a run or a de-pegging) can cause a stablecoin’s value to fluctuate unexpectedly. This contradicts the whole point of a stablecoin.
- Cybersecurity Threats: Stablecoin platforms are digital, making them vulnerable to hacking and theft. A successful attack could drain funds, compromise user data, and severely damage trust in the system. This risk is amplified by the interconnectedness of the crypto ecosystem.
- Legal and Compliance Concerns: The regulatory landscape for stablecoins is still developing globally. Different jurisdictions may have conflicting rules about how stablecoins should be classified (securities, commodities, money?), leading to uncertainty for businesses and users. This regulatory uncertainty adds operational complexity and potential legal liabilities.
Understanding these risks is crucial. For example, the algorithmic stablecoins, which attempt to maintain their peg through complex algorithms rather than reserves, are generally considered higher risk due to their inherent volatility and complexity. Conversely, stablecoins backed by 1:1 reserves of fiat currency are typically viewed as safer, but still subject to the other risks listed above (especially liquidity and cybersecurity).
In short: While stablecoins offer potential benefits, it’s essential to carefully consider the regulatory landscape and inherent operational risks before using or investing in them. The lack of clear, globally consistent regulations makes this a particularly complex area.
Should I use USDC or USDT?
The age-old question: USDC or USDT? While both are stablecoins pegged to the US dollar, significant differences impact their risk profiles. USDC boasts stronger regulatory oversight and full collateralization, meaning each USDC token is backed by a dollar’s worth of reserves, primarily held in US Treasuries and cash equivalents. This transparency, achieved through regular audits by reputable firms like Grant Thornton, provides a higher level of assurance.
Conversely, USDT’s collateralization and regulatory landscape are less transparent and consistently scrutinised. While Tether claims full backing, the exact composition and audits haven’t always been as readily available or convincingly independent, leading to past controversies and impacting investor confidence. This lack of complete transparency presents a greater risk.
Therefore, from a risk-aversion standpoint, USDC generally emerges as the safer option. However, both stablecoins operate within a relatively volatile space. It’s crucial to remember that no stablecoin is entirely risk-free. Always diversify your holdings and thoroughly research any asset before investing.
Consider factors beyond simple safety, too. Trading volume and liquidity differ between the two. USDC frequently exhibits greater liquidity on many exchanges, potentially impacting transaction speeds and fees. Therefore, while USDC’s superior regulatory compliance and collateralization arguably make it safer, the optimal choice depends on individual needs and risk tolerance within the specific context of your trading strategy.
What is the disadvantage of stablecoins?
Stablecoins, while aiming for price stability, face inherent risks stemming from their underlying collateralization mechanisms. The most significant disadvantage is the peg risk. If the asset backing a stablecoin (e.g., USD in a fiat-collateralized stablecoin, or cryptocurrency in an over-collateralized stablecoin) loses value or its issuer experiences insolvency, the stablecoin’s peg will break, leading to potentially significant depegging and investor losses. This risk is amplified by factors like the transparency and auditability of the reserve assets. Lack of transparency can conceal manipulation or mismanagement, whereas insufficient auditability prevents independent verification of the reserves. Further complications arise from regulatory uncertainty. The evolving regulatory landscape for stablecoins creates considerable uncertainty for issuers and users alike, potentially affecting their operations and adoption.
Beyond peg risk, smart contract vulnerabilities represent a critical concern, particularly for algorithmically-managed stablecoins. Bugs or exploits in the underlying smart contracts can destabilize the system, leading to unexpected price fluctuations or complete collapse. Similarly, liquidity risks can arise, particularly during periods of market stress. The inability to quickly redeem stablecoins for their underlying assets can significantly impact their price stability and user confidence. Finally, concentration risk, where a single entity holds a disproportionate amount of a stablecoin, introduces systemic risk. This leaves the entire system vulnerable to the actions or insolvency of that single entity.
Do stablecoins have security risks?
Stablecoins, while marketed as risk-free, are anything but. Operational risks are substantial; network congestion or outages can cripple transactions, leaving you high and dry during crucial moments. This isn’t just a minor inconvenience; it directly impacts liquidity, potentially leading to significant slippage or missed opportunities. Remember the TerraUSD collapse? A perfect example of how network issues, coupled with broader market sentiment, can unravel a supposedly stable asset.
Regulatory uncertainty is a ticking time bomb. Governments are still grappling with how to classify and regulate stablecoins, creating a volatile legal landscape. A sudden regulatory crackdown could freeze assets, rendering your investment illiquid. This legal ambiguity is a major risk factor that’s often overlooked by less sophisticated investors.
Finally, contagion risk is paramount. Stablecoins are not immune to wider market events. A crisis in the traditional financial system or a major crypto crash can trigger a domino effect, eroding confidence in even the most reputable stablecoins. The correlation between stablecoins and the broader market is often higher than advertised; the perceived “decoupling” is frequently an illusion.
Beyond these, consider the algorithm risk inherent in algorithmic stablecoins. Their reliance on complex algorithms makes them vulnerable to unforeseen flaws or attacks, potentially leading to rapid de-pegging and substantial losses. Diversification across multiple stablecoin types and collateralization mechanisms is crucial, but even this doesn’t eliminate the inherent risks.
Which crypto will boom in 2025?
Predicting the future of cryptocurrency is inherently speculative, but based on current market trends and technological advancements, several contenders show potential for significant growth in 2025. The following are not financial recommendations, but rather an analysis of potential based on existing metrics. Remember, all crypto investments carry substantial risk.
Solana (SOL): SOL’s high transaction throughput and relatively low fees make it attractive for decentralized applications (dApps). However, network outages have been a concern, impacting its long-term reliability and adoption. Its current market cap suggests significant potential for growth, but only if it can improve its network stability and address scalability issues in the long run. Price volatility remains a key risk factor.
Ripple (XRP): The ongoing legal battle with the SEC significantly impacts XRP’s price and future. A favorable outcome could lead to a surge in price, while an unfavorable decision could severely limit its growth. Its established presence in the cross-border payment sector gives it a competitive edge, but regulatory uncertainty remains a major hurdle. Its large market capitalization suggests it may be less volatile proportionally to smaller market cap coins.
Dogecoin (DOGE): DOGE’s price is largely driven by community sentiment and social media trends, making it highly volatile and unpredictable. Its lack of inherent technological innovation makes it a risky investment compared to platforms that offer strong utility. While unexpected surges are possible, it is not considered a strong long-term bet based on technological fundamentals.
Cardano (ADA): Cardano emphasizes a research-driven approach to blockchain development, focusing on peer-reviewed academic research and a layered architecture. Its robust development and strong community provide a solid foundation, but its slower development cycle compared to other platforms might hinder its rapid growth in the short term. Long-term potential is tied to the success of its development roadmap.
Important Disclaimer: This analysis is based on publicly available information and does not constitute financial advice. The cryptocurrency market is highly volatile, and investments can result in significant losses. Thorough research and risk assessment are crucial before investing in any cryptocurrency.
What are the negatives of stablecoins?
Stablecoins? Yeah, they’re touted as risk-free, but that’s a massive misconception. Price stability isn’t guaranteed; they’re susceptible to depegging – meaning their value drifts from the pegged asset (usually the dollar). This isn’t some minor fluctuation; we’re talking about substantial swings that can wipe out your investment. Think about the algorithmic stablecoin collapses – a stark reminder of this inherent volatility.
Market cap and liquidity are equally crucial. A shrinking market cap makes them vulnerable, while liquidity crunches can lead to a domino effect, especially during market downturns. This isn’t just about individual losses; we’re talking systemic risk. If a major stablecoin depegs, it can trigger a cascading failure across the entire crypto market. Remember, the underlying assets backing these coins aren’t always transparent or easily verifiable. Due diligence is paramount.
Regulatory uncertainty adds another layer of risk. Governments are still figuring out how to regulate these things, and sudden changes in policy can have a significant impact on the stablecoin market. Furthermore, the “stable” aspect often hinges on complex algorithms or reserves, which can themselves be manipulated or fail catastrophically. It’s a system ripe for exploits and unforeseen vulnerabilities.
So, the bottom line? While seemingly safe, stablecoins aren’t without their dangers. Always remember to diversify your portfolio, and be aware of the inherent risks before investing.
Which is safer USDT or USDC?
While USDT enjoys higher trading volume and wider adoption, USDC generally garners a stronger reputation for transparency and perceived safety. This stems from Circle’s commitment to monthly independent audits of its reserves, a higher frequency than Tether’s quarterly attestations. This more frequent auditing provides a potentially more up-to-date picture of USDC’s backing, offering greater assurance to users regarding its 1:1 peg to the US dollar. However, it’s crucial to remember that neither stablecoin is entirely risk-free. Past controversies surrounding Tether’s reserves highlight the inherent challenges in maintaining perfect transparency and the potential for de-pegging, regardless of audit frequency. Ultimately, choosing between USDT and USDC involves balancing perceived risk and practical considerations like liquidity and availability on specific exchanges.
Consider diversification across different stablecoins to mitigate potential risks associated with any single issuer. The regulatory landscape for stablecoins is also constantly evolving, influencing the relative safety and risk profiles of both USDT and USDC. Stay informed about regulatory developments and maintain a healthy skepticism towards all stablecoins, as their value is not inherently backed by a physical asset like gold.
Are stablecoins trustworthy?
Trust in stablecoins? Look at market cap and liquidity – that’s your best bet. A massive market cap means fewer wild swings, it’s like a giant ship; harder to sink. High liquidity? That’s your escape hatch – you can get in and out quickly without tanking the price. Think of it like a busy highway versus a bumpy dirt road.
Algorithmic stablecoins are a different beast entirely. They rely on complex code to maintain their peg, and often, that code is… let’s say less battle-tested. Look for transparency – check the audit trails. If they’re hiding something, run.
Collateralized stablecoins are generally safer. They’re backed by actual assets, like USD or other crypto. But even here, do your homework. What’s the collateral ratio? 1:1 is ideal, but some operate with less, adding extra risk. And always investigate the custodian – where are these assets actually held?
Transparency is king. A truly trustworthy stablecoin will openly disclose its reserves, audits, and operations. Anything less should raise red flags. Don’t just blindly trust the marketing hype.
Diversification is key. Never put all your eggs in one stablecoin basket. Spread your risk across several reputable options to minimize your exposure to any single point of failure.
Are stablecoins protected by the government?
No, stablecoins aren’t inherently protected by the government in the same way traditional bank deposits are. However, the regulatory landscape is evolving rapidly. In the UK, for instance, if a stablecoin firm is deemed a systemically important payment system operator or service provider by the Treasury, it will face dual regulation.
This means the Financial Conduct Authority (FCA) will oversee conduct, ensuring fair practices and consumer protection. Simultaneously, the Bank of England (BoE) will handle prudential regulation, focusing on the firm’s financial stability and resilience to prevent systemic risk. This dual regulation framework aims to mitigate risks associated with widespread stablecoin adoption, providing a degree of protection for users.
Crucially, this protection applies specifically to *regulated* stablecoin firms meeting certain criteria. Many stablecoins operate outside this framework, leaving users vulnerable to issuer insolvency or algorithmic failures. Therefore, understanding the regulatory status of a particular stablecoin is vital before investing or using it. Always check whether a stablecoin is subject to this dual regulatory oversight or any other comparable framework in their jurisdiction.
The lack of widespread government backing highlights a key risk of stablecoins: the inherent reliance on the creditworthiness and operational stability of the issuing entity. Unlike government-backed currencies, the value of many stablecoins isn’t guaranteed by a sovereign state.
What is the top 5 stablecoin?
Stablecoins aim to maintain a 1:1 peg with a fiat currency, usually the US dollar. This means 1 stablecoin should always be worth $1. However, this isn’t always perfectly achieved.
Top 5 Stablecoins by Market Cap (as of this writing – this changes constantly!):
1. Tether (USDT): $143.80B Market Cap. USDT is the biggest stablecoin, but it’s also the most controversial due to questions about its reserves and transparency. It’s widely accepted on many exchanges.
2. USDC (USDC): $59.72B Market Cap. USDC is generally considered more transparent and regulated than USDT. It’s backed by reserves of US dollars and other assets.
3. Ethena USDe (USDE): $5.37B Market Cap. Relatively newer stablecoin compared to USDT and USDC.
4. Dai (DAI): $3.28B Market Cap. DAI is an algorithmic stablecoin, meaning its value is maintained through a complex system of smart contracts and collateral, rather than direct fiat backing. This makes it less susceptible to regulatory issues, but also potentially more volatile.
Important Note: Market caps and rankings fluctuate constantly. Always do your own thorough research before investing in any cryptocurrency, including stablecoins. While aiming for stability, risks still exist, including the possibility of de-pegging (losing their $1 value) and platform risks.
What are the problems with stablecoins?
The core challenge with stablecoins lies in their defining characteristic: the peg. Maintaining a stable 1:1 ratio with a fiat currency like the USD is incredibly difficult and inherently risky. Algorithmic stablecoins, for example, often rely on complex mechanisms that can fail under pressure, leading to dramatic de-pegging events, as witnessed with TerraUSD (UST). This instability undermines the very purpose of stablecoins – providing a safe haven and a stable medium of exchange within the volatile crypto landscape.
Reserve-backed stablecoins, while seemingly safer, still present risks. The composition and transparency of the reserves are crucial. If a stablecoin issuer mismanages or misrepresents its reserves, a run on the stablecoin can quickly lead to a collapse, as concerns about solvency grow. Audits are vital, but their frequency and the level of detail they provide vary significantly, leaving users vulnerable.
Furthermore, the regulatory landscape remains largely unclear. The lack of standardized regulations creates a significant risk for both users and the financial system. Different jurisdictions are taking different approaches, which leads to uncertainty and fragmentation. Once regulations are in place, requiring rigorous reserve backing, transparency, and auditing standards, the perception of different stablecoins should equalize. This standardization will likely reduce the perceived risk premium currently associated with some stablecoins.
Finally, the concentration of power in the hands of a few issuers represents a systemic risk. If a major stablecoin issuer faces insolvency or regulatory challenges, it could trigger a domino effect, impacting the entire crypto ecosystem. Increased competition and the emergence of decentralized stablecoin solutions aim to mitigate this, but the challenge remains substantial.
The promise of stablecoins as a bridge between the traditional financial system and the decentralized world is undeniable. However, until the aforementioned issues—related to pegging mechanisms, reserve management, regulation, and issuer concentration—are effectively addressed, the risks outweigh the benefits for many.
Can USDC freeze funds?
USDC, like any stablecoin pegged to the dollar, is susceptible to regulatory pressures. Circle, the issuer, reserves the right to freeze funds associated with illicit activities, sanctions violations, or breaches of their terms of service. This isn’t unique to USDC; it’s a feature of centralized stablecoins. Think of it as a bank freezing your account for suspicious activity – except the “bank” is a blockchain company.
While decentralized stablecoins aim to mitigate this risk by removing a central authority, they introduce other complexities. The key takeaway is that no stablecoin offers complete immunity from regulatory intervention or the potential for freezing funds under certain circumstances. Always prioritize due diligence; understand the risks involved before entrusting significant funds to any stablecoin or crypto asset.
Furthermore, associating your USDC with blacklisted addresses – even unintentionally – can lead to account restrictions. Thorough KYC/AML compliance on exchanges is crucial to minimize this risk. Ignoring red flags and operating in a legally gray area significantly increases the chance of your funds being frozen. Ultimately, responsible crypto investing necessitates awareness of these regulatory realities.
What is the most reliable stablecoin?
Determining the “most reliable” stablecoin is tricky, as “reliable” is subjective and depends on your risk tolerance. The top contenders, based on market cap, are consistently Tether (USDT) and USDC (USDC). However, both have faced scrutiny regarding their reserves and transparency. USDT, despite its market dominance, has a history of minor deviations from its $1 peg and ongoing regulatory concerns. USDC, issued by Circle, generally boasts greater transparency regarding its backing, though it’s not entirely immune to market fluctuations.
USDE and DAI represent alternative options. USDE offers a different approach to stablecoin design, while DAI aims for decentralization through algorithmic mechanisms. However, both have smaller market caps, potentially implying less liquidity and higher volatility compared to USDT and USDC. It’s crucial to remember that all stablecoins carry inherent risks. Thorough due diligence, understanding the backing mechanisms, and diversification across different stablecoins are crucial for mitigating those risks.
Do you have to pay taxes on stablecoins?
Taxable Events: Capital gains taxes apply when you sell, exchange, or otherwise dispose of stablecoins for a profit. This profit is calculated based on the difference between your acquisition cost and the sale price. This holds true even if the stablecoin’s value remains relatively stable against its pegged asset. Furthermore, using stablecoins to purchase goods or services is considered a taxable event, with the fair market value at the time of the transaction forming the tax basis.
Different Tax Implications Depending on Use: The specific tax treatment can vary depending on how you utilize stablecoins. If you’re using them solely as a store of value, the tax implications will be different compared to using them for frequent trading or as a medium of exchange for goods and services. Understanding this nuance is crucial for accurate tax reporting.
Record Keeping is Paramount: Meticulous record-keeping is paramount. Maintain detailed records of all stablecoin transactions, including acquisition dates, costs, and disposal details. Failure to accurately track these transactions can lead to significant tax penalties.
Consult a Tax Professional: Given the complexity of crypto taxation, seeking advice from a tax professional specializing in cryptocurrency is strongly recommended. They can guide you through the intricacies of stablecoin taxation, ensuring compliance and minimizing your tax liability.
Is USDC 100% backed?
USDC’s 1:1 backing claim is a crucial detail, but let’s dig deeper. While they boast 100% backing by cash and cash equivalents, the *composition* of those reserves is key. Scrutinize those monthly attestations – don’t just glance at the headline figure. Look for the breakdown: how much is in highly liquid treasuries? How much in commercial paper? Commercial paper can be risky, and its liquidity can dry up quickly in a crisis. Remember the TerraUSD collapse? That highlighted the vulnerability of algorithmic stablecoins and the importance of true, transparent reserve composition in maintaining peg stability. The third-party attestation is good, but independent audits offer a higher level of assurance. The regulatory environment surrounding USDC is another factor to consider. Changes in regulation could impact its stability, and it’s vital to stay informed on this evolving landscape. Ultimately, “100% backed” isn’t a guarantee of risk-free investment; understanding the *what* and the *how* behind that claim is where true due diligence lies.
Don’t forget counterparty risk. While the reserves are held at regulated institutions, these institutions themselves carry inherent risk. The risk is distributed, not eliminated.
Bottom line: Due diligence is paramount. Don’t just accept the marketing; actively investigate the details. The more you understand the underlying mechanics, the better you can manage your risk.
