What Is a Stablecoin? How USDT and USDC Hold a Dollar Peg

A stablecoin is a crypto token designed to hold a fixed value, usually one US dollar, most often by keeping reserves of cash and short-term government debt.

Stablecoins are the mostly dollar-denominated tokens that move between crypto exchanges, wallets and trading venues on blockchains such as Ethereum, Tron and Solana. This page covers how a dollar stablecoin keeps its peg, the main designs, what happened when two of them broke their pegs, the rules written for issuers in the United States and the European Union, and what Kresmion's on-chain data shows about stablecoin movements. It is descriptive throughout.

How a dollar stablecoin holds its peg

The largest stablecoins work like a ledger of claims on a pool of reserves. When an approved customer sends dollars to the issuer, the issuer creates (mints) new tokens on a blockchain. When a customer returns tokens, the issuer destroys (burns) them and pays out dollars. If that one-for-one exchange is reliable, the token's market price stays close to $1: a price below $1 lets those with access buy tokens cheaply and redeem them for a dollar, and a price above $1 lets them mint at a dollar and sell higher.

In practice, few holders have that access. A 2025 Federal Reserve staff note on USDC observes that stablecoins "tend to restrict access to their primary markets to a select few institutional investors" and that most individual holders can only trade the coin on secondary markets. Everyone else relies on those few to keep buying and redeeming.

The main designs

Fiat-backed. The issuer holds reserves in dollars, bank deposits, Treasury bills and similar assets. Tether's USDT and Circle's USDC are the two largest.

Crypto-collateralized. Users lock other crypto assets in a smart contract worth more than the stablecoins they borrow against them, so the excess absorbs price swings in the collateral, and positions are liquidated if the collateral's value falls too far. DAI is an example.

Algorithmic. These try to hold the peg with a mechanism rather than reserves, for example by letting holders swap the stablecoin for a sister token. TerraUSD (UST) used this design and is the cautionary case below.

The same token can live on several blockchains at once: USDT, for example, circulates on both Tron and Ethereum.

When a peg breaks

USDC, March 2023. When Silicon Valley Bank failed, Circle had $3.3 billion of USDC reserves deposited there, about 8 percent of the total. The Federal Reserve staff note records that at its trough USDC traded at 86 cents to the dollar. After US authorities said all of the bank's depositors would be made whole, Circle said the deposit would be available and USDC returned to its peg. The reserves had not been lost, but holders could not be sure of that over a weekend, and most of them could not redeem directly.

TerraUSD, May 2022. The SEC describes UST as an algorithmic stablecoin that was supposed to keep its peg by being interchangeable with a sister token, LUNA. In May 2022 UST lost its peg, and the SEC says the price of UST and its sister tokens fell close to zero. Its backing was mainly the market value of LUNA itself, so when confidence in both tokens fell at the same time, the mechanism failed.

The two cases show the two different risks: a reserve that is sound but temporarily out of reach, and a design whose backing was largely its own sister token.

The rules for issuers

United States. The GENIUS Act was signed into law on 18 July 2025. According to the White House fact sheet, it requires payment stablecoins to be backed 100 percent by liquid assets such as US dollars or short-term Treasuries, requires issuers to publish monthly disclosures of what their reserves hold, and gives stablecoin holders priority over other creditors if an issuer fails. The Act itself bars a permitted issuer from paying holders interest or yield solely for holding, using or keeping the coin. It takes effect on the earlier of 18 months after enactment, which is 18 January 2027, or 120 days after regulators issue final rules.

European Union. Under the Markets in Crypto-Assets Regulation (MiCA), the rules for e-money tokens and asset-referenced tokens, the two categories that cover stablecoins, have applied since 30 June 2024, according to the European Banking Authority.

A rule on reserves does not remove every risk. Reserves still sit with banks and custodians, redemptions can still bunch up, and a token that trades on a secondary market can still slip below $1 for a time.

What Kresmion shows about stablecoin flows

Kresmion's on-chain data records large stablecoin transfers alongside BTC, ETH and SOL. Kresmion's exchange flow page is free to view and covers the Solana leg: USDC, USDT and SOL moving into and out of the Solana wallets of tracked exchanges over the last 7 days, counting transfers of $100,000 or more, with the latest transfers linked to Solana Explorer. USDC and USDT are valued there at their $1 peg. With a free account, the full tracker adds BTC, ETH, USDC and USDT flows across 24 hours, 7 days and 30 days, with stablecoin flow totals, and a separate whale activity page carries a transfer feed that records USDT and USDC transfers of $100,000 or more on Ethereum and Solana.

A stablecoin moving onto an exchange is a dollar balance arriving where it can be traded; one leaving may be heading to a self-custody wallet, a lending protocol or another venue. Kresmion's exchange netflow explainer covers how to read those flows and why an exchange moving coins between its own wallets is filtered out.

Honest limitations

Kresmion's transfer data reads Ethereum and Solana for stablecoins, not Tron, which also carries USDT, so USDT movement on Tron is outside it. Exchange wallets are attributed from a curated list, only recent transactions of each wallet are read on each pass, and transfers can be missed, so the figures are a sample, not a census. Valuing USDC and USDT at $1 overstates their value during a depeg. Reserve disclosures are published by the issuers and examined on their own schedule, so they describe a past date.

Key takeaways

Frequently asked questions

Are stablecoins backed by real dollars?

The largest fiat-backed stablecoins say they hold reserves of cash, bank deposits, Treasury bills and similar assets against the tokens in circulation, and publish reports on those reserves. Crypto-collateralized stablecoins are backed by other crypto assets, and algorithmic designs may have no independent reserve at all.

Can a stablecoin lose its peg?

Yes. USDC traded as low as 86 cents in March 2023 when part of its reserves was held at a failed bank, and TerraUSD fell close to zero in May 2022. A peg depends on reserves being sound and on redemptions working when many holders want out at once.

What is the difference between USDT and USDC?

Both are fiat-backed dollar stablecoins issued by private companies, Tether and Circle respectively. They differ in issuer, reserve composition, disclosure practice and which blockchains carry most of their supply.

Do stablecoins pay interest?

The GENIUS Act bars permitted US payment stablecoin issuers from paying holders interest or yield solely for holding, using or keeping the coin, once its requirements take effect. Third-party platforms may offer returns on stablecoin deposits by lending or deploying them, which carries risks of its own.

Does Kresmion track stablecoin transfers?

Yes, for transfers of $100,000 or more. The free exchange flow page shows USDC and USDT moving into and out of tracked exchanges on Solana, and signed-in readers see the Ethereum leg and a separate whale transfer feed as well. Tron is not covered.

This page is information, not investment advice.

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Source: Federal Reserve, FEDS Notes, "In the Shadow of Bank Runs: Lessons from the Silicon Valley Bank Failure and Its Impact on Stablecoins" (2025), https://www.federalreserve.gov/econres/notes/feds-notes/in-the-shadow-of-bank-run-lessons-from-the-silicon-valley-bank-failure-and-its-impact-on-stablecoins-20251217.html ; Circle, "$3.3 Billion of USDC Reserve Risk Removed, Dollar De-peg Closes", https://www.circle.com/pressroom/3-3-billion-of-usdc-reserve-risk-removed-dollar-de-peg-closes ; SEC press release 2023-32, Terraform Labs and Do Kwon, https://www.sec.gov/newsroom/press-releases/2023-32 ; The White House, Fact Sheet on the GENIUS Act, July 2025, https://www.whitehouse.gov/fact-sheets/2025/07/fact-sheet-president-donald-j-trump-signs-genius-act-into-law/ ; GENIUS Act, Public Law 119-27 (interest and yield ban in section 4(a)(11); effective date section), https://www.govinfo.gov/content/pkg/PLAW-119publ27/pdf/PLAW-119publ27.pdf ; European Banking Authority, Asset-referenced and e-money tokens (MiCA), https://www.eba.europa.eu/regulation-and-policy/asset-referenced-and-e-money-tokens-mica ; Kresmion exchange flow tracker and whale transfer feed (transfers of $100,000 or more).

Kresmion Research.