Mint and burn

Mint and burn is how a stablecoin breathes. Supply is not fixed; it expands and contracts one-for-one with the fiat entering and leaving the issuer’s reserve. When an onboarded customer delivers dollars, the issuer mints that many tokens and the reserve grows by the same amount. When a holder redeems, the issuer burns the returned tokens and pays out from the reserve. If the discipline holds, circulating supply and reserve value track each other exactly, and that equality is what the peg rests on.

The mechanics matter for institutions because they define the primary market. Only customers onboarded with the issuer, having passed its compliance checks, can mint or redeem directly at par; everyone else buys and sells on secondary markets at the prevailing price. In calm conditions arbitrage keeps the two prices identical: if the coin trades below a dollar, an onboarded institution can buy it, redeem at par, and pocket the difference, which pulls the price back up. In stressed conditions, the redemption window is the whole game. A depeg deepens or heals depending on how fast the issuer can burn tokens and return fiat.

Why the ledger makes supply auditable

Because mints and burns are ordinary ledger transactions, a stablecoin’s circulating supply is public in real time, something no bank deposit base has ever been. Reserve attestations, published monthly or quarterly by the major issuers, can be reconciled against the on-ledger supply they claim to back. The reserves themselves are conventional assets held off-ledger, in Treasury bills, repos, and bank deposits, so the attestation bridges the visible half (supply) and the invisible half (backing).

The same mechanics carry over to tokenized deposits, with one structural difference: when a bank mints a deposit token it is not taking in new money, it is changing the form of a deposit already on its balance sheet, and a transfer between customers of different banks settles between the banks rather than through a shared reserve. The mint-and-burn vocabulary is shared; the balance-sheet consequences are not.

For settlement purposes, mint and burn also define the boundary between rails. Moving value onto the ledger requires a mint (or a purchase), and moving it back to a bank account requires a burn (or a sale). Those crossings, the on-ramp and off-ramp, are where cost, delay, and compliance obligations concentrate, which is why payment designs try to minimize how often value crosses rather than how fast it moves in between.