Stablecoins Explained: USDC vs. USDT
What stablecoins are, how dollar-backed coins keep their $1 value, how USDC and USDT compare, what the GENIUS Act changes in the U.S., and the risks of depegs, issuers and platforms.
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Key takeaways
- Most stablecoins aim to stay at $1 by holding reserves of cash, bank deposits and short-term U.S. Treasury bills.
- On October 4, 2026, CoinGecko listed Tether's USDT at about $184 billion in market value and Circle's USDC at about $74 billion.
- The GENIUS Act, signed July 18, 2025, requires U.S. payment stablecoin issuers to hold 1:1 reserves in specified safe assets and publish monthly reserve reports.
- Stablecoins are not FDIC insured, and they can temporarily lose their peg, as USDC did in March 2023.
Bitcoin and most cryptocurrencies swing in price from hour to hour. Stablecoins are designed to do the opposite: one token should always be worth one dollar. That stability makes them the main currency for trading on crypto exchanges, a way to move dollars across borders quickly and, increasingly, a payment tool. How well a stablecoin holds its value depends entirely on what backs it and who stands behind it.
How stablecoins keep their value
| Type | How it works | Examples and track record |
|---|---|---|
| Fiat-backed | An issuer holds cash, deposits and Treasury bills and promises to redeem each token for $1 | USDT, USDC, PYUSD; the dominant type |
| Crypto-collateralized | Tokens are backed by more than $1 of other crypto locked in smart contracts | DAI and its successors; vulnerable to sharp crypto crashes |
| Algorithmic | Supply and incentives, not reserves, are supposed to hold the price | TerraUSD collapsed in May 2022, wiping out tens of billions of dollars of value |
For fiat-backed coins, arbitrage keeps the price near $1: if the token trades at $0.99, large holders can buy it and redeem it with the issuer for $1. That only works if redemptions are reliable and the reserves are real and liquid.
USDC vs. USDT
| USDT (Tether) | USDC (Circle) | |
|---|---|---|
| Market value, October 4, 2026 | About $184 billion | About $74 billion |
| Issuer | Tether, based outside the U.S. | Circle, a U.S. company |
| Reserve reporting | Quarterly attestations by an accounting firm | Monthly attestations; reserves held largely in a government money market fund and bank deposits |
| History | Settled with the New York Attorney General and the CFTC in 2021 over past statements about its reserves | Briefly fell to about $0.87 in March 2023 when part of its reserves sat at the failed Silicon Valley Bank; recovered once the deposits were protected |
| Where it is used most | Global trading, especially outside the U.S. | U.S. platforms, payments and decentralized finance |
Market values change daily. Neither token pays interest to holders directly; the issuers earn the interest on the reserves. Platforms that offer "yield" on stablecoins are lending or deploying them, which adds risk.
The GENIUS Act: U.S. rules for payment stablecoins
The Guiding and Establishing National Innovation for U.S. Stablecoins Act, signed into law on July 18, 2025, created the first federal framework for payment stablecoins. Key points:
- Issuers need federal or state approval.
- Reserves must back outstanding tokens at least one-to-one, in a limited list of assets such as cash, insured deposits, short-term Treasury bills and certain repurchase agreements.
- Issuers must publish monthly reports on the makeup of their reserves, examined by a registered public accounting firm.
- Holders get priority claims on reserves if an issuer fails.
The law takes effect 18 months after enactment or 120 days after regulators issue final rules, whichever is earlier, so implementing rules were still being finalized in 2026. Even under the new law, stablecoins are not bank deposits and are not FDIC insured.
Risks of holding stablecoins
- Depeg risk: a stablecoin can trade below $1 if confidence in its reserves or redemptions falters.
- Issuer risk: the value depends on the issuer's honesty, solvency and the quality of its reserves.
- Platform risk: stablecoins held on an exchange or lending platform depend on that company; see crypto wallet vs. exchange.
- Freezes: issuers can freeze tokens at specific addresses, for example under law enforcement orders.
- Scams: fake tokens with similar names and "guaranteed yield" schemes are common; see cryptocurrency risks.
Stablecoins vs. a savings account
For money you simply want to keep in dollars, an FDIC-insured high-yield savings account pays interest directly to you and is protected up to $250,000. Stablecoins make sense for moving money within the crypto ecosystem, fast transfers or international payments, not as a replacement for insured savings.
Taxes
The IRS treats stablecoins as digital assets like other crypto. Because they stay close to $1, selling or spending them rarely produces a meaningful gain or loss, but the transactions are still reportable, and rewards or interest earned on stablecoins are taxable income. See crypto taxes explained.
Frequently asked questions
Are stablecoins safe?
Safer than most cryptocurrencies against price swings, but not risk-free. They depend on the issuer's reserves and are not FDIC insured.
What is the difference between USDC and USDT?
Both aim to be worth $1. USDT is larger and widely used in global trading; USDC is issued by a U.S. company with monthly reserve attestations and is common on U.S. platforms.
Can a stablecoin lose its peg?
Yes. USDC briefly fell to about 87 cents in March 2023, and the algorithmic TerraUSD collapsed entirely in May 2022.
Do stablecoins pay interest?
Not directly. Some platforms pay yield by lending them out, which adds risk. Under the GENIUS Act, payment stablecoin issuers may not pay interest to holders.
Are stablecoins regulated in the U.S.?
Yes, increasingly. The GENIUS Act of 2025 sets licensing, reserve and disclosure requirements for payment stablecoin issuers; federal and state regulators are writing the implementing rules.
