How stablecoin reserves work, and what to check

What backs a dollar stablecoin

The two largest dollar stablecoins, Tether's USDT and Circle's USDC, are issued by companies that say every token in circulation is matched by reserve assets. When someone deposits dollars with the issuer, new tokens are created. When tokens are redeemed, they are destroyed and the dollars are paid out.

Reserves are usually a mix of a few types of asset:

• Cash and bank deposits — the most direct backing, but exposed to the bank that holds them.
• Short-term US Treasury bills — government debt that matures within months and can usually be sold quickly.
• Overnight repurchase agreements (repos) — short loans backed by Treasuries as collateral.
• Money market funds — funds that themselves hold Treasuries and repos.

Some issuers also hold other assets. Tether's reports, for example, have listed bitcoin, gold and secured loans alongside Treasuries. These can change in value, so the share they make up is worth checking.

Attestation is not an audit

Issuers publish reserve reports with an accountant's attestation. An attestation checks that, at a stated moment, the reserves listed in the report existed and matched the tokens outstanding. It is a snapshot.

A full audit examines a company's financial statements over a whole period, including its other assets and debts. The two are often confused in headlines. When you read a reserve report, note the date of the snapshot, the type of report and who signed it. Circle publishes reserve reports monthly; Tether publishes attestations quarterly.

Who can redeem, and how

Redeeming directly with the issuer is usually limited to verified business customers, often with minimum amounts and sometimes fees. Most people never redeem: they sell the stablecoin on an exchange to someone else.

That matters for the price. If many holders want out at once and only a few can redeem directly, the market price can slip below one dollar for a while, even if the reserves are intact. Arbitrage traders who can redeem usually buy the discounted tokens and push the price back up.

A real test: March 2023

In March 2023 Circle said that $3.3 billion of USDC's reserves were held at Silicon Valley Bank, which had just failed. Over the following weekend USDC traded well below one dollar, at times under 90 cents, because nobody knew whether those deposits would be recovered.

After US authorities said on 12 March that all of the bank's depositors would be protected, USDC returned to its peg. The reserves had not disappeared; the doubt was about access to one slice of them. The episode showed that where reserves are kept matters as much as what they are.

The rules are catching up

In the European Union, the MiCA regulation's rules for stablecoins have applied since 30 June 2024, with requirements on reserves, redemption and authorisation for issuers.

In the United States, the GENIUS Act was signed into law on 18 July 2025. It requires payment stablecoins to be backed one-for-one by liquid assets such as dollars and short-term Treasuries, requires issuers to publish the make-up of their reserves every month, and bars issuers from paying interest to holders. How each issuer complies is a story worth following as the rules take effect.

Five lines to check in any reserve report

• Reserves versus tokens outstanding — reserves should be at least equal to the tokens in circulation.
• Composition — how much is cash and short-term Treasuries, and how much is something else.
• Where it is held — which banks and custodians, and how concentrated.
• Date and report type — a snapshot from months ago says little about today.
• Redemption terms — who can redeem, minimum size, fees and timing.

None of these tells you a stablecoin is safe. They tell you what the issuer is promising and how it says it keeps that promise.