A stablecoin is a token that promises to trade at one unit of a currency, usually one US dollar. Tether showed $184.0 billion of USDT in circulation on October 4, 2026, and Circle showed $74.1 billion of USDC on October 5. Three designs back that promise: fiat reserves, crypto collateral or an algorithm. They fail in different ways.
Three designs, three ways to fail
A fiat-backed stablecoin is backed by assets the issuer holds, mostly cash, short-term Treasury bills and repurchase agreements. The issuer promises redemption at one dollar. Circle's USDC and Tether's USDT are the two examples measured below.
A crypto-collateralised stablecoin is issued against other crypto assets locked in a smart contract. In our explanation, such designs usually require more collateral value than the stablecoin issued, because the collateral can fall in price. The US Financial Stability Oversight Council describes MakerDAO's DAI as backed by other crypto-assets.
Algorithmic and synthetic designs hold little or no ordinary reserve. MiCA's text describes algorithmic stablecoins as protocols that raise or lower supply in response to demand. TerraUSD, or UST, was the best-known case. The SEC says that after UST lost its dollar peg in May 2022, UST and Terraform's other tokens fell close to zero, wiping out $40 billion in market value.
Cash, Treasury bills and repo. Examples: USDC and USDT.
Issued against other crypto assets. Example: DAI.
UST relied on code and a sister token. USDe pairs collateral with short futures.
Synthetic designs are newer than Terra's. Ethena's documentation says USDe is backed by a mix of assets, including spot crypto paired with short perpetual futures positions, so that price moves in the collateral are offset by the hedge. It keeps a reserve fund for periods when funding rates turn negative, and it lists funding rates and exchange counterparties among its risks.
| Design | What backs it | Main way it can fail | Evidence in this guide |
|---|---|---|---|
| Fiat-backed | Cash, bills and repo held by the issuer | Reserves are hard to reach, or redemptions stop | USDC and SVB, March 2023 |
| Crypto-collateralised | Other crypto assets in a smart contract | Collateral falls, or is itself a stablecoin that slips | DAI and USDC, March 2023 |
| Algorithmic | A companion token and code | Confidence breaks and the supply mechanism feeds the fall | Terra, May 2022 |
| Synthetic | Spot collateral paired with short futures | Funding costs or an exchange failure | Listed as risks in Ethena's documentation |
What reserve reports show
An attestation is an accounting firm's report on a specific claim on a specific date, such as reserves exceeding tokens in circulation. It is not a full audit of the issuer, and it says nothing about the days between reports. Circle says a Big Four firm gives monthly assurance for USDC, and the latest month listed on its page on October 5 was August 2026. Tether says BDO Italia issues quarterly assurance reports.
| USDC (Circle) | USDT (Tether) | |
|---|---|---|
| In circulation | $74.1 billion on October 5, 2026 | $184.0 billion on October 4, 2026 |
| Reserves or assets | $74.3 billion of total reserves | $187.75 billion of assets against $183.64 billion of liabilities on June 30, 2026 |
| Cushion | About $0.2 billion, from rounded figures | $4.11 billion of net equity |
| Main holdings | Circle Reserve Fund (USDXX), a government money market fund managed by BlackRock, plus bank cash | 74.91% cash, equivalents and short-term deposits; 10.03% precious metals; 7.17% secured loans; 3.09% bitcoin; 2.79% other investments; 2% public equities |
| Reviewer and rhythm | Big Four firm, monthly; reserve holdings disclosed weekly | BDO Italia, quarterly |
The two issuers make different promises. Circle's reserve is mostly a government money market fund and bank cash. About 25 percent of Tether's reported assets sit outside cash and equivalents, by our arithmetic, in metals, loans, bitcoin, equities and other investments. Tether's page says its reports are prepared by management, and that BDO Italia's engagement is limited to the reserves report and its totals on one date.
Redemption terms can also end. Tether's page says it has wound down its euro token, EURT, and is no longer obligated to redeem it. It adds that from February 20, 2027 it will no longer be obligated to accept redemption of its yuan token, CNHT. It also no longer issues or redeems tokens on several legacy blockchains, including Kusama, Bitcoin Cash SLP, Omni Layer, EOS and Algorand.
What real depegs looked like
On March 10, 2023, Silicon Valley Bank closed. The FSOC's 2023 report says Circle then disclosed that $3.3 billion, about 8 percent, of the reserves behind USDC sat at the bank. A run followed: $1.6 billion of USDC was redeemed that day, and Coinbase and Binance paused conversions between USDC and dollars. Over the weekend USDC temporarily lost its peg, falling as low as $0.89.
Circle's own post that weekend gave the split. It put 77 percent of the reserve, $32.4 billion, in Treasury bills and 23 percent, $9.7 billion, in cash. It also noted that issuance and redemption are limited by US banking hours, even though the token moves around the clock. On March 12 the Federal Reserve, Treasury and FDIC said SVB depositors would have access to all their money from March 13. By March 15 about $3 billion of USDC had been redeemed.
The stress crossed designs. The FSOC says DAI also slipped over that weekend because about 52 percent of its collateral was USDC. One issuer's banking problem became a collateral problem for another stablecoin.
Terra was a different kind of failure. The FSOC calls USDC's loss of peg temporary, while the SEC says UST's price plummeted to close to zero. The agency obtained a jury verdict finding Terraform Labs and Do Kwon liable for securities fraud, and announced a $4.5 billion monetary settlement in June 2024.
US and EU rules, and the Circle charter
The GENIUS Act became law on July 18, 2025. It covers payment stablecoins, tokens used for payment or settlement whose issuer must redeem them for a fixed amount of money. Permitted issuers must hold identifiable reserves of at least one to one. They must publish reserve composition monthly and pay holders no interest or yield for holding the token.
Permitted reserves include US currency, Federal Reserve balances, bank deposits, Treasury bills and notes with 93 days or less to maturity, overnight repos and reverse repos backed by Treasuries, and government money market funds. A registered public accounting firm must examine each month-end report, and the chief executive and chief financial officer must certify it, with criminal penalties for a knowingly false certification. If reserves fall short, a holder's remaining claim has first priority in bankruptcy to the extent the issuer should have held more.
The Act takes effect on the earlier of 18 months after enactment or 120 days after the primary federal regulators issue final rules. Treasury's September 30, 2026 interim final rule says the date is expected to be January 18, 2027, and that from then it will generally be unlawful to issue payment stablecoins in the US without being a permitted issuer. Three years after enactment, July 18, 2028, digital asset service providers may not offer stablecoins from non-permitted issuers to US persons, with exceptions.
The rulebook is unfinished. The Federal Register shows proposals from Treasury (August 18, comments due October 19), the OCC (March 2), the FDIC (April 10), the NCUA (February 12 and May 18) and the Federal Reserve (September 29, comments due November 30). The NCUA's notice says the Act required its rules by July 18, 2026, a date that has passed. We found one final-type rule, Treasury's interim procedural rule on state certifications, and no final rule from a primary federal regulator.
MiCA, Regulation (EU) 2023/1114, splits stablecoins in two. An e-money token references one official currency. An asset-referenced token references other values or a basket. Those rules have applied since June 30, 2024, and the rest of MiCA since December 30, 2024. Service providers that operated before MiCA could continue only until July 1, 2026 at the latest.
| Question | US GENIUS Act | EU MiCA |
|---|---|---|
| Who may issue | Permitted payment stablecoin issuers; others barred once the Act takes effect | Credit institutions and e-money institutions, with a notified white paper |
| Reserves | At least 1 to 1 in listed assets, Treasury paper of 93 days or less | At least 30% in separate bank accounts, the rest in low-risk liquid assets in the same currency |
| Redemption | Clear procedures for timely redemption | At any time at par, free of charge |
| Interest | Issuers may not pay interest or yield for holding | Issuers and service providers may not grant interest |
| Status on October 7, 2026 | Law since July 18, 2025; rules still mostly proposed | Fully applicable since December 30, 2024 |
ESMA's interim register, updated October 7, 2026, lists 25 e-money token issuers with 50 white-paper entries. They include Circle Internet Financial Europe SAS, dated July 1, 2024 under France's ACPR. The register's file for asset-referenced token issuers has no entries, and we found no entity named Tether in the e-money file. The GENIUS Act is separate from the CLARITY Act, the market structure bill we follow in our Senate recess report.
On July 10, 2026 the OCC gave final approval to Circle's national trust bank, First National Digital Currency Bank, N.A., which operates as Circle National Trust. Circle's release says it will provide custody of digital assets for Circle and its affiliates at opening, and may later serve a limited group of institutions such as banks.
The charter is designed to let the USDC reserve be managed inside the bank later, which Circle says would bring that work under federal oversight. That step has not happened yet. In our reading, the charter changes who supervises reserve custody, not what a holder can redeem. Our approval report has the timeline.
A checklist for judging stablecoin risk
These are questions to ask, not a recommendation to hold or avoid any token.
- Who issues it, and under which regime? Look for a US license once the GENIUS Act applies, or an ESMA register entry.
- What backs it? Compare cash and Treasury bills with metals, loans, bitcoin and other assets.
- Who checks it, and how often? Monthly assurance, quarterly assurance and an audit are different things.
- Can you redeem at par, and at what fee? MiCA requires par redemption at any time for e-money tokens.
- Where does the reserve cash sit, and what collateral or hedge backs a non-fiat design?
Where you hold the token also matters. Our wallet security guide covers custody choices, which sit alongside the issuer risks above.
