Stablecoins: what backs the dollars, euros, and pesos you hold

A token designed to hold a currency’s value

The issuer creates tokens when customers deliver money, holds assets in reserve, and removes tokens when customers redeem them. USDC, the dollar stablecoin that Lex shows as US Dollar, is issued by Circle. According to Circle’s transparency page, most USDC reserves sit in an SEC-registered government money market fund holding cash, short-dated US Treasury bills, and overnight repurchase agreements, with the rest held as cash at large banks. Circle publishes its reserve holdings weekly, and a Big Four accounting firm provides monthly assurance that reserves exceed the USDC in circulation.

Disclosures like these are a reason to prefer a well-documented stablecoin over an unknown one. They are still statements by the issuer and its auditors, which is why it helps to know who stands behind each token you hold rather than treating every coin labeled “dollar” as the same thing.

Different currencies, different issuers

Stablecoins also exist for other currencies, and each one is a separate product. EURC is Circle’s euro stablecoin; Circle says it is backed by euros held at regulated financial institutions in the European Economic Area and describes it as compliant with the EU’s MiCA rules. MXNB tracks the Mexican peso and is issued by Juno, part of the Bitso group. BRLA tracks the Brazilian real and is issued by Avenia, which says its reserves are held in Brazilian government bonds and regulated custody, with monthly reporting.

For new Mexican peso and Brazilian real purchases, Lex uses Ripio’s wMXN and wBRL. See wFIAT in Lex for availability and the distinction from existing MXNB and BRLA holdings.

Each issuer sets its own reserve policy, reporting schedule, and redemption terms, and each coin trades with its own depth of market. A dollar stablecoin with billions in daily trading can usually be exchanged in large amounts at a price close to its target. A smaller currency stablecoin may cost more to convert, especially in a large amount or at a quiet time.

A single blockchain network can carry many stablecoins, including several local-currency coins. Being on the same network makes conversion possible; it does not make two coins equivalent. The name of the currency is the starting point, and the issuer’s documents are where the details live.

Is a stablecoin a bank deposit?

A stablecoin is not a bank deposit, even when part of its reserves sits in banks. It is not covered by the FDIC, IPAB, FGC, or any deposit-insurance scheme, and its price can move away from its target. Redemption terms are set by each issuer and may be limited to customers who hold an account with it; most individual holders sell or convert them through an app or trading platform.

March 2023 showed what that means. When Silicon Valley Bank failed, Circle disclosed that $3.3 billion of USDC reserves, about 8% of the total, were held there. A Federal Reserve analysis found that USDC traded as low as 86 cents while Circle’s primary market was closed over the weekend. Once US authorities announced that all SVB depositors would be protected, the reserves became available and the price returned to about one dollar.

The episode ended well for holders who waited, but the lesson is structural. Reserve quality, the banks that hold part of the reserves, and the issuer’s ability to process redemptions under stress all affect what a stablecoin is worth at a given moment. Holding one means accepting that risk in exchange for a currency balance you can keep and move from your own wallet.

Money for now, not a bet

Stablecoins suit money you expect to use soon: expenses over the next few months, a cushion for the unexpected, or a payment you plan to make in another currency. Investor.gov describes time horizon as a basic input to how money is allocated; money needed within months generally belongs in steadier holdings than money meant for decades.

Holding a currency stablecoin adds exchange-rate exposure whenever you measure it in another currency. A balance in wMXN keeps its peso amount while its value in dollars moves with the peso. That can be useful when an upcoming expense is in pesos, and a source of loss when it is not. Converting back and forth to chase short-term moves adds costs without a reliable reward.

Stablecoins are also not a substitute for an investment plan. They are designed to hold a value, not to grow. Money you will not need for years can be invested separately, with the understanding that investments can fall in value; money you need soon is better kept where its value is easier to predict.

How stablecoins work in Lex

In Lex, stablecoins appear under Currencies on the Home screen, with USDC shown as US Dollar alongside any euro, peso, real, Canadian dollar, or pound stablecoins you hold. They sit in your self-custodial wallet, in a separate section from your stocks.

Where available for your account, Receive in the Transfer tab offers bank instructions for US dollar transfers by ACH or wire, euro transfers by SEPA, and pound transfers by Faster Payments. Bridge processes these transfers, converts the incoming money, and delivers it to your wallet as USDC. These bank transfers require identity verification with Bridge. Lex charges a 0.25% fee on bank transfers through Bridge in and out; Bridge’s own fees and any currency conversion also affect the final amount. Receive also shows your wallet address and its network for transfers from other wallets.

To hold another currency, use Buy currencies. The quote shows the exchange rate with fees included before you approve; Lex charges no fee to convert and currently covers network fees. Purchases start at $5 and are limited to $1,000 per order. To leave, Send can pay out USDC to a US, euro, or UK bank account, or move a supported asset to another wallet address on the same network; for these Bridge bank payouts, convert other currencies back to USDC first.

Lex also offers SPEI in Mexico, Pix in Brazil, and bank transfers in Argentina. Check the app for the operations available to your account, the provider, the asset received, fees, limits, and timing. Local-currency tokens such as wMXN, wBRL, and wARS track their respective currencies; they are not USDC or dollar balances.

An example: pesos for next month

Illustrative figures only. Mateo lives in Guadalajara and keeps the money he needs for the next few months in Lex. He adds $1,000 by ACH from his own US bank account. After Lex’s 0.25% fee of $2.50, and assuming no other provider charges, $997.50 arrives in his wallet as USDC.

He expects about 9,000 pesos of expenses next month, so he converts $500 of USDC to wMXN. Before approving, he reviews the exchange rate with fees included and the minimum amount he will receive. The rest stays in USDC for costs he expects to pay in dollars, and none of it is money he plans to invest for the long run.

If the peso weakens 5% against the dollar before he spends it, his wMXN still covers the same peso expenses, but its value in dollars falls by about 5%. Had the peso strengthened, the reverse would apply. Matching the currency of an upcoming expense removes one source of uncertainty; it is not a prediction, and every conversion has a cost that the quote shows before he approves.