What Is USDT? How Stablecoins Like Tether and USDC Work and Their Risks

What is USDT and what is a stablecoin?

A stablecoin is a crypto token designed to keep a steady value, usually one unit of a national currency. USDT, also called Tether or USD₮, is the largest. Its issuer, Tether, records the tokens it has issued as liabilities on its balance sheet and reports the assets it holds against them ^[1]. USDC, issued by Circle, works on the same basic model and says its reserves are held mainly in a government money market fund and in cash at large banks ^[6].

Unlike bitcoin, a fiat-backed stablecoin is a claim on a company. Its value depends on that company holding enough safe assets and honouring redemptions. The Bank for International Settlements (BIS) points out that stablecoins often trade in secondary markets at an exchange rate that can move away from par, in a similar way to how an exchange-traded fund's price can differ from the value of its holdings ^[10].

Stablecoins are used to protect savings from a weak local currency and to move money abroad, as reporting from Iran shows ^[14]; Elliptic has also suggested that Iran's central bank may have used them to work around barriers to settling international trade, though that use is unconfirmed ^[11]. This is general information, not financial or legal advice.

How do USDT and USDC keep their $1 value?

The peg rests on two things: reserves and redemption. When a verified customer sends dollars to the issuer, new tokens are created; when tokens are returned, the issuer pays out dollars and the tokens are removed. Tether's terms state that issuance and redemption are available only to verified customers ^[2]. Its fee schedule sets a 150 USD verification fee, a minimum purchase or redemption of 100,000 USD, a 0.1% fee on acquisitions, and a redemption fee of the greater of $1,000 or 0.1% ^[4].

Because of that minimum, most individuals never deal with Tether directly. They buy and sell USDT on exchanges or with other users, at whatever price the market sets. That market price can move away from $1 ^[10], and it has fallen sharply when confidence in reserves was shaken ^[12].

What is a de-peg?

A de-peg is when a stablecoin trades meaningfully away from its target. On 11 March 2023, Reuters reported that USDC fell as low as $0.88 after Circle disclosed that $3.3 billion of its $40 billion of USDC reserves were held at the failed Silicon Valley Bank ^[12].

How big are USDT and USDC as of 3 November 2026?

As of 3 November 2026, DefiLlama's tracker showed about $296.6 billion of US dollar-pegged stablecoins in circulation ^[5]. USDT accounted for about $178.8 billion and USDC for about $71.15 billion, so the two together made up roughly 84% of the total (a calculation from the tracker's figures) ^[5].

Tether's own quarterly report gives a slightly different snapshot because it is dated 30 September 2026. On that date Tether reported total assets of $191,451,091,374 and total liabilities of $183,496,460,904, of which $183,469,787,261 related to digital tokens issued ^[1]. The difference, $7,954,630,470, is what Tether calls excess reserves, up from $4.1 billion at the end of the previous quarter ^[1].

Circulation figures change daily as tokens are created and redeemed, so check the date on any number you quote.

What backs USDT and USDC, and who checks it?

Tether (USDT)

Tether's quarterly reports are attestations prepared by BDO, which Tether describes as a top-five global independent accounting firm ^[1]. For 30 September 2026 it reported $132.4 billion of direct and indirect US Treasury bill holdings and $1.5 billion of net operating profit in the third quarter ^[1]. In August 2026 Tether said KPMG had completed a full audit of the financial statements of Tether International for the year ended 31 December 2025, with an unqualified opinion and reserves exceeding liabilities by $6.814 billion ^[3]. An attestation checks figures at a point in time; an audit examines a full set of financial statements.

Circle (USDC)

Circle says most USDC reserves sit in the Circle Reserve Fund, an SEC-registered government money market fund managed by BlackRock, with the rest held as cash, mostly at a handful of the world's largest banks ^[6]. A Big Four accounting firm provides monthly third-party assurance that reserves exceed the USDC in circulation, and Deloitte has been Circle's financial auditor since fiscal 2022 ^[6].

Past problems

History matters for judging claims. In October 2021 the US Commodity Futures Trading Commission (CFTC) ordered Tether to pay a $41 million civil penalty, finding that it held enough fiat reserves to back its tokens on only 27.6% of the days in a 26-month sample period from 2016 through 2018 ^[13].

What are the risks of stablecoins?

Stablecoins can carry dollar value across borders outside the banking system, and Elliptic reported indications that Iran's central bank used USDT to support the value of the rial ^[11]. Their risks are specific and well documented:

• De-peg risk. Market prices can drop below $1 when trust in reserves is shaken, as USDC did in March 2023 ^[12].
• Issuer risk. A fiat-backed stablecoin is only as sound as its issuer's reserves and disclosures; regulators have penalised misstatements before ^[13].
• Freezing. Tether's terms let it freeze tokens held by a user, including where it suspects prohibited use ^[2]. Elliptic notes that stablecoin issuers typically keep the power to stop a wallet from transacting ^[11].
• Structural limits. The BIS concluded in 2025 that stablecoins perform poorly against three tests for sound money, singleness, elasticity and integrity, and cannot be the mainstay of the future monetary system ^[10].
• Crime. The BIS also warns that stablecoins are attractive to criminal and terrorist organisations because of their bearer-like design ^[10], which keeps regulators focused on them.

How are stablecoins regulated in the US and EU?

United States: the GENIUS Act

The GENIUS Act was signed into law on 18 July 2025 ^[7]. According to the White House fact sheet, it requires 100% backing with liquid assets such as US dollars or short-term Treasuries, monthly public disclosure of reserve composition, and gives stablecoin holders' claims priority over other creditors if an issuer fails ^[7]. It also places issuers under the Bank Secrecy Act and requires them to be able to freeze, seize or burn tokens when legally required ^[7].

On 21 October 2026 the Office of the Comptroller of the Currency (OCC) issued its final rule for issuers it supervises, covering reserves, redemption, risk management, custody and capital ^[8]. The OCC states that both its rule and the Act take effect on 18 January 2027, and that anti-money-laundering and sanctions rules will follow in a separate rulemaking with the Treasury ^[8].

European Union: MiCA

Under the EU's Markets in Crypto-Assets Regulation (MiCA), the rules for asset-referenced tokens and e-money tokens (Titles III and IV) have applied since 30 June 2024 ^[9]. The European Banking Authority reported that, as of 1 September 2026, 39 e-money tokens had been issued under MiCA and no asset-referenced tokens had been authorised ^[9].

What should Iranian users know about USDT?

Many Iranians use USDT to shield savings from inflation or move money abroad ^[14], but the legal position is restrictive on both sides. Tether's terms name Iran as a Prohibited Jurisdiction whose residents are barred from using its services ^[2]. Users must also certify that they are not sanctioned persons, and Tether reserves the right to freeze tokens ^[2].

Freezes have happened. Elliptic reported in January 2026 that wallets it linked to the Central Bank of Iran (CBI) had acquired at least $507 million of USDT, and that on 15 June 2025 several of those wallets were blacklisted, freezing 37 million USDT ^[11]. Elliptic added that because stablecoins run on public blockchains, such flows can be tracked and blocked at exchanges and custodians ^[11].

Domestic rules are tight too. Iran International reported that on 27 September 2025 the secretary of the CBI's High Council announced a cap of $5,000 a year on stablecoin purchases per person and a $10,000 cap on total holdings on licensed platforms, with one month for existing holders to comply ^[14]. The same report said the rial hit a record low of 1,136,500 per US dollar that day ^[14]. Rules change often, so check the CBI's latest notices; this is not legal advice.

How can users reduce stablecoin risk?

1. Read the latest reserve report. Check the date, the firm that prepared it, and whether it is an attestation or an audit ^[1][3][6].
2. Know who holds your tokens. On an exchange, you depend on that company; in your own wallet, you depend on your own key security.
3. Match the network. Stablecoins run on several public blockchains, including TRON and Ethereum ^[11]. Check that the sending and receiving network match before a transfer.
4. Watch the market price. A price well below $1 is a warning sign, as March 2023 showed ^[12].
5. Check the rules where you live. Issuer terms, sanctions and local caps can all restrict use ^[2][14].

What happens next for stablecoin rules?

The next fixed date is 18 January 2027, when the GENIUS Act and the OCC's rule take effect in the United States ^[8]. Separate federal rules on money laundering and sanctions were still to come as of the OCC's October 2026 bulletin ^[8]. In the EU, 39 e-money tokens had been issued under MiCA by 1 September 2026 ^[9]. Meanwhile the BIS argues for a next-generation system built on tokenised central bank reserves, commercial bank money and government bonds, with central bank reserves at the core rather than stablecoins ^[10].