Stablecoin Really Stay “Stable”? Understanding the Secrets and Future Trends of USDT and USDC in One Article

Stablecoin, A Comprehensive Exploration for a Global Audience. Stablecoin, as a crucial component of the cryptocurrency world, what exactly are they? What are the underlying operational mechanisms and potential risks? Today, we’ll delve deep into this concept that is often mentioned but not easily fully understood – stablecoins.

I. Stablecoin: Digital Tokens Pegged to Fiat Currencies

In simple terms, stablecoins are digital tokens pegged to fiat currencies. The most common peg is to the US dollar, with well – known examples like USDT and USDC. Many people start their journey into cryptocurrencies with Bitcoin. They soon discover that on trading platforms, USDT and USDC also frequently appear. Their price fluctuations are extremely minimal, almost resembling a digital shadow of the US dollar. One USDT or USDC is roughly equivalent to one US dollar and doesn’t experience the wild price swings like Bitcoin.

So, why were stablecoins invented? Can’t we just use US dollars for transactions directly? 🤔

II. Why Do We Need Stablecoin?

The core reason is that the traditional US dollar system is difficult to integrate directly into the blockchain system. The traditional banking system is closed. Clearing between US dollar accounts requires the use of the SWIFT system, inter – bank clearing, and foreign exchange conversions. This process is not only slow but also costly. In contrast, stablecoins can achieve instant global transfers with relatively low transaction fees, making them a perfect fit for trading scenarios on the blockchain.

III. USDT vs. USDC: Background and Core Differences

Although USDT and USDC may seem similar on the surface, there are significant differences between them.

1. Comparison of Issuers and Backgrounds

USDT: It is issued by Tether, a company registered in the British Virgin Islands. Some believe that the company has a close relationship with the cryptocurrency exchange Bitfinex and is even regarded as a fund – withdrawal tool for Bitfinex. Tether has long been criticized by US regulatory authorities for issues such as insufficient asset transparency, lack of independent audits, and complex components of underlying collateral.

USDC: It is issued by Circle, a US – based company headquartered in Boston with a branch in Ireland. The Circle project has received high recognition from the US Treasury Department and the US financial regulatory framework. The investors behind USDC include traditional Wall Street financial giants such as Goldman Sachs, Blackstone, and BlackRock.

From a background perspective, USDT is more like a “grassroots” player, with its main holders being cryptocurrency exchanges and being more popular among users in Asia and the Middle East. USDC, on the other hand, has a deep – rooted Wall Street background.

2. Reserve Assets and Compliance

Since stablecoins claim to be pegged to the US dollar, do they maintain an absolute 1:1 relationship with it? In fact, they strive to maintain this relationship, but it can deviate under market panic or regulatory turmoil. For example:

• During the 2022 Terra collapse, USDT once fell to $0.95.
• During the 2023 Silicon Valley Bank crisis, USDC also dropped below $0.99.

So, stablecoins and the US dollar also experience exchange – rate fluctuations, albeit very small ones.

So, do USDT and USDC really have one US dollar in reserve for each token? This is the crux of the matter.

According to public data, USDT’s reserve assets include some US dollar cash and US treasury bonds, but it also holds assets such as gold and Bitcoin. However, new regulations recently introduced by the US government clearly state that the underlying assets of institutions issuing stablecoins must be US dollar cash or US treasury bonds, and gold and cryptocurrencies are not considered compliant. This is a fatal blow to USDT, as its underlying asset structure does not comply with the new regulations. If Tether does not make adjustments, it may be forced to exit the US market. Although it can still be used currently, the “hammer” of US regulation could fall at any time. ⚠️

In contrast, Circle has announced that all of its reserve assets are deposited in US banks and consist solely of US dollars and short – term US treasury bonds. Moreover, they publish audit reports to the US Securities and Exchange Commission (SEC) every month. Although not yet fully regulated, Circle has been actively seeking to be brought under the SEC’s regulatory umbrella, which is why it is known as Wall Street’s “model student.” Many speculate that if the US government decides to launch a digital US dollar in the future, Circle is likely to obtain an official franchise and become a semi – official stablecoin, effectively serving as a trial version of the digital US dollar. ✨

IV. The “Instability” and Potential Risks of Stablecoins

1. Price Deviation Phenomenon

As mentioned earlier, stablecoins are not 100% stable. Under extreme market conditions, their peg to fiat currencies can still experience short – term decoupling, causing losses to holders.

2. Risk of Run and Collapse

Is there a possibility that these stablecoin issuers could abscond with the funds? The answer is yes. If the underlying assets are non – compliant, or if there is a bank run by customers, or if the issuer misappropriates customer funds and lacks effective regulation, it could lead to a sudden collapse similar to the FTX incident. Therefore, when choosing stablecoins, it is essential to pay attention to the issuer’s reputation, asset transparency, and regulatory status. 🚨

V. Other Stablecoins and Their Fates

In addition to USDT and USDC, there are other stablecoins in the market. Globally, popular stablecoins have included Dai and BUSD launched by Binance (which has been suppressed by US regulatory authorities). Circle has also launched EURC, a stablecoin pegged to the euro, but its user acceptance is far lower than that of USDT and USDC. Moreover, UST, launched by Terra, was once extremely popular. However, due to flaws in its algorithmic design, it eventually collapsed, resulting in the evaporation of $40 billion and heavy losses for investors. Currently, USDT and USDC still dominate the market, jointly accounting for over 90% of the market share.

So, don’t assume that stablecoins are truly “stable”; they can also face the risk of collapse. 🤔

VI. The Future Outlook of the Digital US Dollar

The Dilemma and Strategy of the US Digital US Dollar

So, why doesn’t the US government directly issue a digital US dollar? This mainly involves complex interest – based games. Once the digital US dollar is officially launched, traditional commercial banks may lose some of their deposit sources. At the same time, the Federal Reserve would have to directly face retail users, which would bring enormous operational, regulatory, and privacy challenges. Therefore, the United States currently prefers to let the market take the lead in exploration, with compliant private institutions like Circle issuing stablecoins and gradually improving the rules. USDC is now widely regarded as the most likely candidate to become a quasi – official digital US dollar pilot project.

VII. Core Summary: Stablecoins Are Not Absolutely Safe

We must remember that stablecoins are not absolutely safe; they are only relatively stable. When choosing and using stablecoins, the key is to examine the issuer, the underlying collateral assets, and whether they are subject to strict regulation. In the future, the entity most likely to become a global digital US dollar will not be the non – compliant USDT but rather the compliant USDC, or even a new official digital cash account authorized by the Federal Reserve. This also indicates a trend: future stablecoins will move closer to the US dollar, but their “free” nature will gradually diminish. Stablecoins have transitioned from an early stage of wild development to a stage of being strongly regulated digital tools. 💡