Frequently Asked Questions
What type of stablecoin should we build?
Fiat-backed (USDC model) is the safest choice for regulated financial products — it is predictable, auditable and has proven stability. Crypto-collateralised (DAI model) is appropriate for DeFi-native applications where decentralisation matters and users accept capital inefficiency. Algorithmic models have an almost universal history of failure under market stress and should only be considered with formally verified mechanisms and experienced DeFi economists.
What does MiCA require for stablecoins?
MiCA (Markets in Crypto-Assets regulation, live in EU since 2024) classifies stablecoins as either e-money tokens (pegged to a single fiat currency) or asset-referenced tokens (pegged to multiple assets or commodities). EMTs require an e-money licence or credit institution authorisation, 1:1 reserve in liquid assets, right of redemption at par at any time, and monthly reserve attestation. Issuers with significant volume face additional requirements including interoperability standards and volume caps.
How does the liquidation mechanism work?
In a CDP stablecoin, when a vault's collateral value falls below the liquidation threshold, the vault is eligible for liquidation. A liquidator repays the outstanding stablecoin debt and receives the collateral at a discount (the liquidation bonus). The discount incentivises liquidators to act quickly. Dutch auction liquidation (as in MakerDAO's Liquidation 2.0) starts at a high discount and decreases over time, finding the market-clearing price. Liquidation bonuses must be calibrated: too low and liquidators won't act; too high and liquidation cascades accelerate collateral price declines.
How do you maintain the peg?
In fiat-backed stablecoins, the peg is maintained by the guaranteed 1:1 redemption mechanism — rational actors will always arbitrage a deviation back to $1 because they can redeem at par. In CDP stablecoins, the stability fee (borrowing cost) and the DSR (deposit/savings rate) create supply and demand incentives that push the price toward $1. Above $1: stability fee increases to reduce minting demand. Below $1: DSR increases to incentivise holding. These are soft mechanisms — they fail when panic overrides rational arbitrage.
What banking infrastructure is needed for a fiat-backed stablecoin?
Fiat-backed stablecoin infrastructure requires: a banking partner willing to hold reserves (increasingly difficult to find), a custodian for reserve assets if investing in short-term Treasuries, a reserve attestation firm for regular audits, an API for real-time reserve verification, and money transmitter licensing in operating jurisdictions. The banking relationship is often the hardest part of launching a fiat-backed stablecoin — banks are cautious about crypto clients and the onboarding process can take months.
Can you build a stablecoin on multiple chains?
Yes. The standard architecture is: a canonical chain where minting and burning happens (usually Ethereum), with lock-and-mint bridges to secondary chains. The total supply across all chains equals the total minted on the canonical chain. Bridge security is the critical risk — the majority of the largest DeFi hacks have been bridge exploits. We use audited, established bridge infrastructure (Chainlink CCIP, LayerZero) rather than custom bridge contracts.
What is proof of reserve and do we need it?
Proof of reserve is the on-chain or publicly verifiable demonstration that the stablecoin's reserve assets match the total outstanding supply. It is required by MiCA for regulated stablecoins, expected by institutional users and increasingly expected by sophisticated retail users after the USDC/SVB incident highlighted reserve counterparty risk. We integrate Chainlink Proof of Reserve or equivalent attestation infrastructure as a standard component of fiat-backed stablecoin builds.
How long does it take to build a stablecoin?
A fiat-backed stablecoin contract (ERC-20 with minter roles and compliance features): 3–4 weeks. A full CDP stablecoin system (vault contracts, oracle integration, liquidation engine, governance): 3–5 months. Cross-chain deployment adds 4–8 weeks per chain. Banking and regulatory setup — the parts outside the code — typically take 3–9 months and should start before contract development begins.
