Stablecoin minting

ERC-20, the basic token standard on Ethereum, defines balances, transfers and approvals, but it has no function that creates or destroys tokens. The standard only asks that a contract which creates new tokens emits a transfer event from the zero address, so every issuer writes its own minting logic. Circle uses a contract called FiatToken for its stablecoins on Ethereum and similar chains. In its token design, a master minter role appoints minters and gives each one an allowance that shrinks with every token it creates, which limits the damage if the key of one minter is compromised.

A minter can burn only tokens held at its own address, so a holder who redeems first sends the tokens back to the issuer. Under Article 49 of MiCA, the issuer of an e-money token issues tokens at par value and on receipt of funds, so the mint follows a payment into the reserve account. A bank that issues a tokenized deposit runs a similar mint and burn cycle, but its token stays a deposit on the balance sheet of the bank.

The token contract can also let the issuer stop tokens from moving, for example when a court or an authority orders it. In the FiatToken design a blacklister role can block an address, which then cannot send, receive, mint or burn tokens, and a pauser role can halt all transfers, minting and burning at once. SG-FORGE, the digital asset business of Societe Generale, reserves the right in the EURCV white paper to blacklist addresses it suspects of illegal activity and to freeze the tokens held there.

On Solana the Token-2022 program offers such controls as token extensions that an issuer switches on when it creates the token. A permanent delegate can transfer or burn tokens from any account of that token, and the account owner cannot revoke this right. An issuer can use it to move tokens without the key of their owner, for example to carry out an order from an authority, while other extensions freeze new accounts by default or pause the whole token.

Some issuers let only verified addresses hold their token, a design called an allowlist or whitelist. In its guidance 06/2024, the Swiss supervisor FINMA expects the identity of every holder of a stablecoin issued by a supervised institution to be verified, including later buyers, and calls for contractual and technological transfer restrictions. The token contract then checks each transfer against a register of approved holders, the model that the ERC-3643 standard describes for permissioned tokens.

MiCA does not require such a transfer restriction for e-money tokens. SG-FORGE took the whitelisting restrictions out of the EURCV contract when it restructured the token under MiCA in June 2024, so that EURCV could reach exchanges, decentralized finance applications and liquidity pools. Identity checks then take place when tokens are minted or redeemed, and at the on- and off-ramps of licensed providers.

An issuer that wants its token on more than one blockchain deploys a separate token on each chain and mints there directly. SG-FORGE issues EURCV as an ERC-20 token on Ethereum, with the Token-2022 standard on Solana, through trust lines on the XRP Ledger and as a native asset on Stellar. Each version has its own code, its own freeze controls and its own keys, so the issuer secures and monitors every deployment separately.

A bridge that moves a stablecoin to another chain usually creates a wrapped copy whose value depends on the bridge. Circle avoids this for USDC with its Cross-Chain Transfer Protocol, which burns tokens on the source chain and mints the same amount on the destination chain without bridge liquidity pools. The FiatToken contract is also an upgradeable proxy, and only an admin key may switch the code behind it, one of the roles a smart contract audit checks before launch.

Redemption connects the burn on the blockchain to a payment in the banking system. For EURCV a holder submits a request, passes identity, eligibility and sanctions checks and transfers the tokens to the issuer, which then pays the euro amount to the cash account of the holder. If a check fails, the issuer rejects the incoming transfer and the tokens return to the wallet. Under Article 55 of MiCA every issuer of e-money tokens also keeps a redemption plan for the case that it can no longer meet its obligations, and notifies it to the supervisor within six months of the offer.

Reserve reporting shows whether the tokens in circulation match the money behind them. SG-FORGE runs a collateral test on every business day with data from the banks that hold the reserve, and it publishes the result on the following business day. Circle publishes monthly assurance reports on the reserves of USDC and EURC, prepared by a Big Four accounting firm under AICPA attestation standards. For a significant e-money token issued by an electronic money institution, Article 58 of MiCA adds the reserve rules for asset-referenced tokens, including an independent audit every six months. A monthly report checks the reserve at one point in time, the same snapshot problem that limits a proof of reserve. Banks and custodians hold the reserve assets themselves under the rules for stablecoin custody.

Minting a stablecoin means that the issuer creates new tokens in the smart contract after it has received the same amount of money for the reserve. The contract records the new tokens at the address of the buyer, and burning removes them again when the buyer redeems them for money.

A firm needs a license, a token contract on at least one blockchain, a reserve account at a bank and a process for redemption. Issuance platforms supply most of the technology, and Bridge, the stablecoin business of Stripe, runs one called Open Issuance, where a business picks the chains, the reserve mix and the branding, and mints or redeems through API calls. In the EU the legal issuer of an e-money token still has to hold a bank license or an e-money license, while stablecoin infrastructure providers can run custody, wallets and payment interfaces for it.

Yes, an issuer can freeze tokens when its contract contains a blacklist or a freeze function controlled by an issuer key, as the contracts of USDC and EURCV do. A blocked address can no longer send or receive the token, and the white paper of the token states the cases in which the issuer uses this power.

USDC and EURCV on Ethereum are ERC-20 tokens with extra roles for minting, blacklisting and pausing. The FiatToken contract also supports ERC-2612 permits and ERC-3009 authorizations, which let a third party submit a signed transfer and pay the network fee for the holder. On Solana issuers use the Token-2022 program, and on the XRP Ledger a stablecoin is held through trust lines to the issuing account.

The technical architecture of a stablecoin starts with the token contract and the roles inside it, such as minter, pauser, blacklister and admin. Around it sit the keys that control those roles, the deployments on each blockchain, the bank accounts that hold the reserve and the systems that match minted tokens against incoming payments and redemptions.