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Most stablecoins hold their dollar value the plain way: a company keeps a dollar, or a short-term US Treasury bill, for every coin it issues, and lets big customers swap coins back for dollars. Others are backed by more crypto than they're worth, locked in a contract, and a few have tried to hold the peg with code and incentives alone. Whether a stablecoin stays at a dollar depends on what's behind it, where that backing sits, and whether you can check it.
- On March 10, 2023, Circle couldn't pull $3.3 billion of USDC reserves out of Silicon Valley Bank, about 8% of the total. USDC slipped below a dollar until US regulators backed every SVB deposit.
- The CFTC found that Tether held enough dollar reserves to back every USDT on only 27.6% of the days it sampled from 2016 to 2018, and fined it $41 million in 2021.
- Since July 2025, the GENIUS Act requires US dollar stablecoins to be fully backed by cash or short-term Treasuries and to publish their reserves every month.
- Issuers can freeze coins in a wallet. That helps against theft and scams, and it also means a stablecoin is never quite cash.
On Friday, March 10, 2023, California regulators closed Silicon Valley Bank. Circle, the company behind the USDC stablecoin, had asked to withdraw $3.3 billion of its reserves from the bank before it failed. The money didn't move in time. That was about 8% of everything backing USDC, according to Circle's own filing with the SEC.
Banks were shut for the weekend, so nobody could swap USDC for dollars at the source. On exchanges, the price slid below a dollar, as low as about 87 cents on some. Circle said it would cover any shortfall from its own money. On Sunday evening the Treasury, the Federal Reserve and the FDIC announced that SVB's depositors would be fully protected, with access to their money from Monday. By Monday, USDC was back at a dollar.
Nothing was wrong with USDC's reserves that weekend. The dollars existed. They were just in the wrong bank at the wrong time. That's the first lesson of stablecoins: the backing matters, and so does where it sits.
Three ways to hold a peg
A stablecoin is a crypto token built to stay worth one dollar, or one unit of some other currency. It's the cash of crypto: what traders park money in between trades, what crypto loans are priced in, what most trading pools pair against. There are three main designs.
| Design | What backs it | Examples | How it breaks | How you check it |
|---|---|---|---|---|
| Fiat-backed | Dollars and short-term Treasuries held by a company | USDT, USDC | Reserves are missing, frozen or stuck in a failing bank | The issuer's monthly reserve report |
| Crypto-backed | More crypto than it's worth, locked in a contract | DAI (now also USDS) | Collateral crashes faster than it can be sold | The collateral, live on the blockchain |
| Algorithmic | Mostly market incentives and a partner token | UST (collapsed 2022) | Confidence goes, and nothing redeemable is left | Nothing to check, which is the problem |
Prefer to watch? The short version in under a minute.
"Fully backed," says who?
For years, Tether told customers that every USDT was backed by a dollar in its bank accounts. In October 2021 the CFTC found that claim wasn't true most of the time. Its order says Tether held enough fiat reserves to back every token in circulation on only 27.6% of the days in a 26-month sample from 2016 through 2018, and that it counted unsecured receivables and non-cash assets as reserves without saying so. Tether paid a $41 million penalty, without admitting or denying the findings. Those findings cover 2016 to 2019, not Tether today.
The lesson isn't that one coin is bad. It's that "fully backed" is a claim, and a claim is only as good as the report behind it. A one-page summary with no accounting firm's name on it doesn't count.
When nothing is behind it: UST
Terra's UST held its dollar through incentives tied to a sister token, LUNA, and through Anchor, a protocol the SEC says "promised to pay 19-20% interest" on UST deposits. In May 2022 big holders ran for the exit. UST slipped, LUNA was minted to defend it, LUNA's price collapsed, and the loop ran both tokens to near zero within about a week. Tens of billions of dollars of value were gone.
USDC recovered in three days because real dollars existed behind it. UST never recovered, because nothing did.
The rules since 2025
On July 18, 2025, the US signed the GENIUS Act into law, the first federal rulebook for dollar stablecoins. According to the White House fact sheet, it requires 100% reserve backing with liquid assets like US dollars or short-term Treasuries, monthly public disclosure of what the reserves are made of, and no misleading claims about backing. The EU's MiCA rules cover stablecoins sold in Europe.
Rules don't make a coin safe by themselves. They do turn "show us the reserves" from a favor into a legal requirement, and they give you a monthly report to read.
Can a stablecoin be frozen?
Yes. The big fiat-backed issuers can block the coins in a specific wallet, and the GENIUS Act expects foreign issuers serving US platforms to follow lawful orders to "seize, freeze, burn or prevent the transfer" of their coins, as Circle's filing describes. That's useful when coins are stolen or sent to a scammer, because a freeze can stop them moving. It also means a stablecoin isn't cash in your pocket. The company behind it keeps a switch.
Scammers like stablecoins for the same reason everyone else does: the amount doesn't swing while they're working on you. Our guide to USDT scams covers the fake balances, "flash" coins and frozen-wallet tricks.
Before you rely on one
- What exactly backs it? Cash and short-term Treasuries, other crypto, or a promise?
- Who checks the reserves, and how often? Look for a monthly report with an accounting firm's name on it, published on the issuer's own site.
- Where do the reserves sit? SVB showed that a full reserve in one bank can still get stuck.
- Who can swap it back for dollars? Often only large customers can redeem directly. Everyone else sells on an exchange, at the exchange's price.
- How did it behave in a bad week? A calm month proves little. March 2023 and May 2022 are the tests.
- If you use DeFi, which stablecoin does your protocol depend on? A lending market priced in a weak stablecoin inherits that weakness. Our guide to liquidity pools shows why stablecoin pairs are the calm end of DeFi.
Rob's take
"Stable" is doing a lot of work in that name. I read a stablecoin's reserve report the way I'd read a bank statement: where is the money today, and who says so? If a coin can't answer that in plain words, every month, I don't care how long it has held a dollar. The SVB weekend is the one I remember. Nobody did anything wrong with the reserves, and it still took the government stepping in to bring USDC back.
FAQ
How do stablecoins keep their value?
Most hold a dollar or a short-term Treasury bill for every coin and let large customers redeem coins for dollars, which keeps the market price near $1. Crypto-backed stablecoins lock up more crypto than the coins are worth. Algorithmic ones rely on incentives, and that design failed badly with UST in 2022.
Can a stablecoin lose its peg?
Yes. USDC fell below a dollar for a weekend in March 2023 when $3.3 billion of its reserves were stuck at Silicon Valley Bank, then recovered. UST lost its peg in May 2022 and never came back.
Are stablecoins FDIC insured?
No. A stablecoin isn't a bank deposit, so FDIC insurance doesn't cover what you hold, even when the issuer keeps its reserves in an insured bank.
What is the GENIUS Act?
It's the US law signed on July 18, 2025 that sets federal rules for dollar stablecoins: 100% reserves in liquid assets like cash or short-term Treasuries, monthly public reports on those reserves, and a ban on misleading claims about backing.
Can my stablecoins be frozen?
Yes. Issuers like Tether and Circle can freeze coins in a specific wallet, usually after theft, scams or a legal order. Decentralized, crypto-backed coins are harder to freeze, but they carry their own collateral risk.
Which stablecoin is the safest?
We don't rank them. Check what backs a coin, who examines the reserves and how often, where they're held, and how the coin behaved in March 2023 and May 2022. Then decide what you're comfortable with.