What is a stablecoin? USDT, USDC and the risks

A stablecoin is a crypto token whose price is usually kept near 1 US dollar. On an exchange it behaves like cash: the USDT or USDC you receive for selling bitcoin does not jump every minute the way most coins do. It is still not a dollar in a bank account.

What it is for

It is the bridge in trading. Many spot and perpetual markets are priced in USDT. It is also a transfer rail: a dollar-like balance can move between wallets without waiting on a bank wire. Some apps and AI agents use stablecoins for on-chain payments too.

USDT and USDC are not the same

Both target 1 dollar. The company and the reserve story behind them differ.

USDT (Tether) is the most traded stablecoin in crypto. Tether says it holds cash, Treasury bills and other assets against the tokens. The details are on its transparency page. That page is not the same thing as a bank examination.

USDC (Circle) is usually described as the product sitting closer to US regulation. Circle publishes reserves on its own transparency page. It can have less trading volume than USDT, and it shows up more often on some exchanges and US-linked apps.

Neither has a single “safer” score. Both depend on a company’s promise and reserves. If that promise fails, the 1 dollar target can fail with it.

Where it breaks

Reserve risk. If the issuer cannot hold assets that are easy to sell for every token, the price can fall below 1 dollar when everyone tries to redeem at once. That happened in 2022 with some smaller stablecoins and with algorithmic designs. An algorithmic stablecoin trusts another coin’s price instead of reserves. That design is a separate risk.

Chain risk. USDT exists on Ethereum, Tron and other networks. A transfer sent on the wrong network may not come back. Check that the network (TRC-20, ERC-20, Solana) matches what the recipient expects before you send.

Address risk. Not every token named “USDT” in a wallet is the one Tether issued. Lookalike contracts exist. If you withdraw from an exchange, use the network the exchange shows. Do not trust a contract address you did not verify.

Legal risk. A stablecoin that is freely traded in one country may not count as a payment instrument in another. This article is not a summary of those rules.

A practical rule

Using USDT or USDC for day-to-day trading is a simpler choice than treating a volatile altcoin as cash. Still, do not keep a large balance in one stablecoin, on one exchange, on a network you do not understand. A balance on an exchange is the exchange’s risk. A balance in your own wallet is the risk of your keys and of holding the right contract.

The short definition is in the stablecoin glossary entry. Exchange referral links, if you want them, are on the exchanges page.