Intermediate level
Judge a stablecoin by what backs it, who can redeem it directly and on what terms, who can freeze it, which law protects holders, and how it behaved under stress. Fiat backed coins like USDC and USDT are claims on an issuer and its banks. DAI and USDS are backed by onchain collateral and a large USDC buffer. Synthetic dollars like USDe depend on derivatives and exchanges. Spreading across designs limits any single failure.
Five questions that separate stablecoins
The beginner guide to stablecoins sorts them into fiat backed, crypto backed and algorithmic. That is the start. To choose between two coins of the same type, ask these instead:
| Question | Why it matters | A strong answer |
|---|---|---|
| What backs it, exactly? | The backing is what you are left with if confidence breaks | Cash, short Treasury bills and overnight repo, disclosed often |
| Who can redeem, and on what terms? | Redemption is the force that pulls the price back to one dollar | A published process, reasonable minimums, disclosed fees |
| Who can freeze or seize it? | A frozen balance is a total loss of use | A published policy, applied through legal process |
| Which law protects holders? | It decides your place in the queue if the issuer fails | A statutory claim on the reserves ahead of other creditors |
| What happened under stress? | Every design sounds fine in calm markets | A dip that closed quickly because redemptions worked |
Fiat backed: reserves, redemption and freezing
A fiat backed stablecoin is a claim on a company that holds reserves, mostly dollars and short term government debt. The details of who can redeem are where the big names differ most.
| Coin | Reserves and reporting | Who can redeem directly |
|---|---|---|
| USDC (Circle) | Mostly the Circle Reserve Fund, an SEC registered government money market fund managed by BlackRock, plus cash at large banks. Holdings disclosed weekly, with monthly assurance from a Big Four firm. | Institutions through Circle Mint. In the EU, Circle’s European entity must redeem USDC for any holder at one to one under MiCA. |
| USDT (Tether) | Quarterly reserve reports. On March 31, 2026, about $141 billion of exposure to US Treasury bills against about $183 billion of tokens, plus about $20 billion of gold and $7 billion of bitcoin. In August 2026 Tether published its first full audit, by KPMG, of its 2025 financial statements. | Verified customers, with a $100,000 minimum, a fee of 0.1% or $1,000 (whichever is greater) and a $150 verification fee. |
| USAT | Launched January 27, 2026 and issued by Anchorage Digital Bank, N.A., a US national bank, as Tether’s coin built for the GENIUS Act framework. | Offered to institutions and platforms, per its launch announcement. |
Terms as published by the issuers as of September 2026. The pattern holds across the category: most holders never redeem directly. They rely on market makers who can, which is why a stablecoin’s price depends on those firms being willing and able to arbitrage during a scare.
Both major issuers can freeze tokens at an address. Circle issues and redeems USDC under a published blocklisting policy. Tether says it has helped freeze more than $4.9 billion of assets in cooperation with authorities, including over $344 million across two addresses in April 2026. For an ordinary user this rarely matters directly. It matters indirectly when a protocol, pool or counterparty you rely on holds funds that get frozen.
What the GENIUS Act changes
The GENIUS Act, signed on July 18, 2025, is the first US federal framework for payment stablecoins. It takes effect on the earlier of January 18, 2027 or 120 days after regulators issue final implementing rules, so check its status before relying on any protection below. The text of the law is readable. For a holder, the main points:
- Reserves at least one to one in cash, bank deposits, Treasury bills with 93 days or less to maturity, overnight repo and government money market funds. Gold and bitcoin are not on the list. Reserves may not be pledged or reused, with narrow exceptions.
- Monthly reserve reports published on the issuer’s website, examined each month by a registered public accounting firm and certified by the CEO and CFO. Issuers above $50 billion also need audited annual financial statements.
- Holders come first. If a permitted issuer fails, stablecoin holders have priority over other creditors on the required reserves.
- No yield from the issuer. A permitted issuer may not pay holders interest or yield just for holding the coin.
- Not insured. Payment stablecoins are not FDIC insured or backed by the US government, and it is unlawful to say they are.
- Freezing is a requirement. Issuers must be able to block, freeze and comply with lawful orders.
- A deadline for platforms. From July 2028, three years after enactment, service providers may not offer payment stablecoins in the US unless a permitted issuer stands behind them, with carve outs for foreign issuers under comparable regimes.
Crypto backed: DAI and USDS
DAI, now run by Sky alongside its successor USDS, is minted against collateral locked in vaults, with more value locked than borrowed. DAI and USDS convert one to one through an official converter with no fee, and Sky’s documentation says fees cannot be enabled on that route. Much of the peg’s strength comes from a peg stability module: a contract where anyone can swap USDC for DAI or USDS and back at a fixed rate. As of September 2026 its fees were zero both ways and it held about $4.1 billion of USDC.
That is a real strength and a real dependency. Anyone can redeem onchain, without an account, as long as the module holds USDC. But part of the backing is USDC, so USDC’s risk flows through. In March 2023, when USDC fell, DAI fell with it to about 89 cents in hourly prices. Holding both is less diversified than it looks. The savings wrapper sUSDS pays the Sky Savings Rate, 3.6% a year as of late September 2026. Governance sets it, and Sky’s documentation describes it as normally kept below what borrowers pay; set higher, the gap becomes system debt that is ultimately covered by minting SKY. The mechanics of vaults and liquidation auctions are in how pegs hold and how they break.
Synthetic dollars: Ethena USDe
USDe has mostly been backed by spot crypto paired with an equal short position in perpetual futures, so the price moves cancel, plus a buffer of liquid stablecoins that need no hedge. As of September 2026 Ethena was diversifying the backing into tokenized real world assets, onchain and institutional lending and non crypto basis trades. The yield paid to sUSDe stakers comes from funding payments on the shorts, staking rewards and the return on the other assets. The Ethena documentation is clear about the moving parts, and the risks follow from them:
Funding can turn negative
Shorts pay longs when the market leans bearish. A reserve fund is meant to absorb negative periods; as of September 2026 the share of revenue directed to it was set at 0%, with its size shown on Ethena’s dashboard.
Custodians, exchanges, borrowers
Backing sits with off exchange custodians and is delegated to derivatives exchanges as margin, and some is lent out. A failure at any of them is a loss the hedge cannot cover.
Redemption is whitelisted
Only approved users mint and redeem directly. Everyone else exits through markets. Unstaking sUSDe had a one day cooldown as of September 2026.
Synthetic designs also carry operational risk that fiat backed coins mostly do not. In March 2026 Resolv’s USR, another delta neutral stablecoin, lost its peg after a key compromise in its infrastructure: DefiLlama records about $24.5 million taken, and USR fell from about $1 to around 30 cents within a day and below 20 cents by the end of the month. The trade underneath these coins is explained in basis trades and delta neutral positions.
Yield bearing stablecoins
Because a permitted issuer may not pay yield, yield comes packaged separately, as a savings contract, a fund or a lending position. The test from where yield comes from applies: name the payer.
| Example | Who pays the yield | The main extra risk |
|---|---|---|
| sUSDS | Sky’s income, mainly fees paid by borrowers | Governance sets the rate; the backing includes USDC |
| sUSDe | Funding, basis, staking and stable asset returns | Negative funding, custodians, exchanges |
| USDC lent on a lending market | Borrowers, via utilization | Withdrawals can stall at full utilization |
| Tokenized Treasury funds | The US government, through T-bills | Fund structure and eligibility rules |
A rule of thumb that has held up well: a yield meaningfully above short Treasury rates means someone is taking a risk you should be able to name. If you cannot name it, you are probably the one taking it.
March 2023: what a depeg teaches
On Friday, March 10, 2023, Silicon Valley Bank failed. Circle had $3.3 billion, about 8% of USDC’s reserves, in a withdrawal that had not settled. Over the weekend USDC traded down to about 88 cents in hourly prices, and DAI followed it. USDT briefly traded above a dollar as holders swapped into it. On Sunday, March 12, the Treasury, Federal Reserve and FDIC announced that all SVB depositors would be protected, and by Monday, March 13, USDC was back near $1.
- Liquidity is not solvency. The reserves were never lost. The market priced the risk that they might be late.
- Timing matters. It happened on a weekend, when banks and redemptions were closed and only markets were open.
- Correlation hides in the backing. A crypto backed coin with a USDC buffer depegged with USDC.
- Selling at the bottom made the loss real. Holders who waited were made whole; many did not wait. Circle later reported a 39% drop in average daily USDC in circulation following the collapse.
Spreading risk across stablecoins
Diversifying stablecoins is not about chasing the best rate. It is about making sure no single failure reaches all of your dollars at once.
What spreading protects against
Failures specific to one design
- An issuer’s bank or custodian failing
- A freeze or legal action against one issuer
- A hack of one protocol or bridge
- Negative funding hitting a synthetic dollar
What it does not
Shared exposures
- Two coins backed by the same reserve asset
- Holding every coin on one chain or in one wallet
- A shock to Treasuries or the dollar itself
- Wrapping everything in the same yield vault
Practical habits: know the redemption path for each coin you hold, prefer natively issued versions over bridged ones, keep the amount in any yield wrapper to what you would accept being stuck for a while, and watch the stablecoin supply figures for large outflows. None of this is a recommendation to hold any particular coin; it is how to hold whichever you choose with your eyes open.
Common questions
Is USDC safer than USDT?
They carry different risks. USDC has more frequent reserve reporting and keeps most reserves in a registered government money market fund, and it depegged briefly in 2023 because of a bank failure. USDT has broader liquidity worldwide, a different reserve mix and a history of questions about reporting that it has worked to answer, including a 2025 audit published in August 2026. Judge each against the five questions above.
Does the GENIUS Act make stablecoins insured?
No. The law says payment stablecoins are not FDIC insured or backed by the US government, and makes it unlawful to claim they are. What it adds is reserve rules, monthly reporting and a priority claim on the reserves for holders if a permitted issuer fails.
Can I redeem USDC or USDT directly for dollars?
Usually not as an individual. Circle Mint is for institutions, although MiCA obliges Circle’s EU entity to redeem for any holder. Tether redeems for verified customers with a $100,000 minimum. Most people exit through an exchange or a swap, which relies on market makers who can redeem.
Why do sUSDe and sUSDS pay different rates?
Because they take different risks. sUSDe earns funding from short perpetual positions, which is high when markets are bullish and can turn negative, plus staking and stable asset returns. sUSDS pays a governance set rate from Sky’s income. Higher pay reflects exposure to derivatives markets, exchanges and custodians.
What should I think about during a depeg?
Separate liquidity from solvency. Ask whether the backing is lost or merely slow to reach, whether redemptions are working, and when the next business day is. Selling at the bottom locks in a loss that patient holders sometimes avoid, but that only works when the backing is really there.
Where to go next
Next: Airdrops and points: how they work, how to judge them
Guide 12 of 16 in the Intermediate level. Your place is kept on this device, so you can pick up exactly here next time.