Reserve Attestation

A reserve attestation is a report issued by an independent accounting firm on a statement made by a stablecoin issuer, or a similar issuer of digital money, about its reserves. Typically, management asserts that on a specific date it held reserve assets of a stated value and composition, and that these were at least equal to the tokens in circulation. The accountant then tests that assertion against bank statements, custody records and blockchain data and reports whether it is fairly stated.

Reserve attestations became the standard form of public assurance for fiat-backed stablecoins because they are quicker and cheaper than a full audit and can be produced monthly or quarterly. They are narrower than a reserve audit and should not be confused with one. Related but different ideas include proof of reserves, a cryptographic method used mainly by crypto exchanges, and the regulator-mandated reports that newer stablecoin laws require.

The scope depends on the issuer's assertion and the engagement terms, but a typical report addresses:

• Tokens outstanding. The number of tokens in circulation on each blockchain where the stablecoin is issued, at the report date and time.
• Reserve value. The fair value of the stablecoin reserves, such as bank deposits, short-term government securities, reverse repurchase agreements or money market fund shares.
• Composition. A breakdown of reserve assets by type, maturity and sometimes custodian, so readers can judge liquidity and credit risk.
• Coverage. Whether reserves were at least equal to tokens outstanding, often expressed as a surplus or ratio.

In the United States, such engagements are generally performed under the attestation standards of the American Institute of Certified Public Accountants, and other countries use equivalent assurance standards. The accountant may give reasonable assurance, the higher level, or limited assurance through a review, and the report states which.

Issuers publish attestations on their websites to support confidence that each token can be redeemed at par through the holder's redemption right. Large issuers such as the companies behind USDC and Tether (USDT) publish them on a regular cycle, monthly or quarterly. Exchanges, payment firms, institutional investors and regulators read them to assess counterparty risk before holding or listing a stablecoin.

Regulators have begun to make attestations mandatory. The New York State Department of Financial Services requires US dollar-backed stablecoins it supervises to obtain monthly attestations from an independent accountant, alongside an annual report on internal controls. Stablecoin frameworks in the European Union, the United States, Singapore and Hong Kong also include reporting, disclosure or audit requirements for reserves, which in practice build on the attestation model.

Attestations have important limits that are often misunderstood:

• Point in time. Most attestations cover a single moment, so they say nothing about what the issuer held between report dates. An issuer could in theory move assets in and out around the reporting date.
• Narrow scope. They test the assertion about reserves, not the issuer's overall financial health, liabilities, internal controls or legal structure.
• Ownership and encumbrance. Unless explicitly covered, they may not confirm that reserves are free of liens, legally segregated for token holders or protected if the issuer becomes insolvent.
• Valuation. Reserves held in less liquid assets may be valued at amounts that could not be realised quickly in a crisis.

For these reasons, critics argued during the growth of the stablecoin market that attestations were not a substitute for audited financial statements, and several issuers faced scrutiny over past claims about their reserves. Newer regulatory regimes respond by combining frequent attestations with requirements for segregated custody, restrictions on eligible reserve assets, and periodic audits.

A reserve attestation sits between self-reported figures, which have no independent check, and a full financial statement audit, which covers a period and the whole entity. It is also different from on-chain proof of reserves, which lets users verify balances cryptographically but usually does not prove the absence of hidden liabilities. Readers comparing stablecoins should check who prepared the report, which standard was used, the level of assurance, the date covered and the composition of the reserves, rather than relying on the existence of an attestation alone. Persistent gaps between reports and market confidence can contribute to a depeg.