Stablecoins explained: how USDT and USDC keep their value

What a stablecoin is

Most crypto assets can swing by several percent in a day. A stablecoin aims not to move at all, so people can use it as digital cash: to pay, to park money between trades, or to send dollars abroad in minutes, at any hour.

Behind most stablecoins sits a company, the issuer, that creates the tokens and promises to buy them back at face value. Holding one means holding a claim on that issuer, not a bank deposit, so there is no deposit insurance. Issuers can also freeze tokens at particular addresses, for example when authorities flag stolen or sanctioned funds.

Three ways to build one

Stablecoins differ mainly in what stands behind the promise of one dollar.

Fiat-backed coins hold traditional assets: bank deposits, short-term US Treasury bills, repurchase agreements (repos) and money market funds. USDT and USDC dominate this group. Tether also holds some gold and bitcoin, whose prices can fall.

Crypto-collateralised coins, such as DAI and its successor USDS from Sky (formerly MakerDAO), are created when users lock up crypto worth more than the stablecoins they mint. If the collateral loses too much value, it is sold automatically. That cushion protects the peg, but a sudden crash or a software bug can still break it.

Algorithmic coins try to hold the peg with code and a sister token instead of reserves. The design failed spectacularly with TerraUSD. The EU now regulates such coins like any other stablecoin tied to a currency, and US law requires one-to-one reserves.

How minting and redemption hold the peg

New fiat-backed coins are minted when approved customers send money to the issuer, and burned when they hand coins back for dollars.

Only verified customers, mostly businesses, deal with the issuer directly. Tether, for instance, requires at least $100,000 to redeem and charges 0.1% or $1,000, whichever is greater. Everyone else trades on exchanges, and that is where the peg is defended. If USDT trades at 99 cents, a verified trader can buy it and redeem it for $1; at $1.01, they can mint at $1 and sell. Those small profits pull the price back toward a dollar.

The loop works only while redemption is credible. When it stalls, or people doubt the reserves, the price can slip.

Reserves and attestations: what they prove

Issuers publish reserve reports checked by accounting firms. Tether's quarterly attestation, prepared by BDO, showed $187.75 billion of assets against $183.64 billion of liabilities on 30 June 2026. Circle publishes monthly reports examined by a Big Four firm.

An attestation confirms that on a given date the reported reserves existed and exceeded the tokens outstanding. It says nothing about the days in between, it is not a full audit of the issuer's finances, and it cannot guarantee the reserves could be sold quickly in a panic.

Composition matters too. Reading the issuers' disclosures, Federal Reserve researchers noted in April 2026 that USDT held about $1.04 of reserves per coin but only about $0.74 in the safest assets (Treasuries, Treasury-backed repos and bank deposits), while USDC's reserves were entirely in such assets. History adds a warning: in 2021 the US Commodity Futures Trading Commission (CFTC) fined Tether $41 million after finding that its reserves fully backed USDT on only 27.6% of days in a 26-month sample from 2016 to 2018.

When pegs break

TerraUSD, May 2022

TerraUSD (UST) was an algorithmic stablecoin: one UST could always be swapped for $1 worth of a sister token, LUNA. Demand was fuelled by the Anchor protocol, which advertised yields of up to 20%. In May 2022 UST lost its peg; swapping UST for LUNA flooded the market with new LUNA, and both fell close to zero. US prosecutors put the losses at about $40 billion, and co-founder Do Kwon was sentenced to 15 years in prison in December 2025.

USDC, March 2023

When Silicon Valley Bank (SVB) failed on 10 March 2023, Circle had $3.3 billion there, about 8% of USDC's reserves. Redemptions stalled over the weekend and USDC traded as low as 86 cents. On 12 March the US Treasury, Federal Reserve and FDIC said all of the bank's depositors would be protected; redemptions resumed the next day and the peg returned.

The lesson: a well-reserved coin can wobble when part of its reserve is stuck, while a coin without real reserves can go to zero.

One coin, many networks

USDT and USDC are not tied to one blockchain. Each issuer deploys a separate version of its token on every network it supports, all backed by the same reserves. Almost all USDT sits on TRON and Ethereum; USDC is spread across nearly 40 networks, led by Ethereum.

BNB Smart Chain is missing for a reason: Tether does not issue USDT there. The "USDT" most people use on BNB Smart Chain is a bridged token issued by Binance and backed by USDT that Binance holds, so its backing also depends on Binance.

The network matters every time you send:

• The recipient must support it. USDT on TRON and USDT on Ethereum are different tokens on different ledgers. Coins sent on a network the receiving address doesn't support can be lost.
• Addresses can look alike. Ethereum and BNB Smart Chain share the same 0x format, so a wrong-network address can look perfectly valid.
• Fees are paid in the network's own coin. You need a little TRX, ETH, BNB or SOL to move a stablecoin on each chain.
• Support can end. Tether stopped supporting USDT on five older blockchains, including Omni and EOS, on 1 September 2025 and froze the remaining tokens there.

What people use stablecoins for

Trading. Stablecoins are the cash of crypto markets: traders move into them to lock in gains, shift money between exchanges and price other assets.

Payments. Transfers settle in minutes, every day of the year, which suits businesses paying suppliers abroad. Everyday shopping with stablecoins is still rare: in a 2024 survey by the Bank for International Settlements (BIS), most central banks called stablecoin payments in their countries trivial outside crypto trading.

Remittances and dollar savings. In some emerging economies, people use dollar stablecoins to send money home or to hold dollars when their own currency is weakening; the same survey found wide use for remittances in a few such countries. Costs don't disappear, though: switching between local money and stablecoins usually involves fees or spreads.

The new rules in the EU and the US

European Union: MiCA

The EU's Markets in Crypto-Assets Regulation (MiCA) has applied to stablecoins since 30 June 2024. A coin tied to one currency is an e-money token, which only a licensed bank or e-money institution may issue. Holders can redeem at face value at any time, free of charge, and neither issuers nor crypto firms may pay interest on it. At least 30% of the money received must sit in bank deposits, the rest in safe, liquid assets in the same currency. If a coin in a non-EU currency is used for more than 1 million payments and €200 million a day within one currency area, its issuer must stop issuing it until use falls.

Circle obtained a French e-money licence in July 2024, so USDC and its euro coin, EURC, comply with MiCA. USDT is not authorised under MiCA, so exchanges licensed in the EU had to stop offering it by the end of March 2025. Since MiCA's transition period ended on 1 July 2026, any firm serving EU clients needs a MiCA licence.

United States: the GENIUS Act

The Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) was signed into law on 18 July 2025. Only permitted issuers, meaning bank subsidiaries and federally or state-licensed companies, may issue payment stablecoins in the US. They must hold at least one dollar of reserves per coin in cash, deposits, Treasury bills maturing within 93 days, overnight repos or government money market funds; publish their reserves monthly, examined by an accounting firm and certified by top executives; and pay no interest or yield. Issuers with more than $50 billion outstanding need audited annual accounts, and holders come first if an issuer fails.

Regulators have proposed their rules, most recently the Federal Reserve on 24 September 2026, but none had been finalised by late September. The Act takes effect on 18 January 2027. From 18 July 2028, US platforms may offer only stablecoins from permitted issuers, or from foreign issuers that meet the Act's conditions.

Central banks are building digital money of their own; our guide to CBDCs versus stablecoins compares the two.