What Is a USD Stablecoin? USDT, USDC, and How They Differ from Bank Deposits
Learn how a USD stablecoin holds its $1 value, how it differs from a US dollar bank deposit, whether it can lose its peg, and whether it can earn interest. USDT and USDC explained with official sources.
A USD stablecoin is a token that circulates on a blockchain and is pegged 1:1 to the US dollar; common ones are USDT, issued by Tether, and USDC, issued by Circle. It is not a bank deposit: there is no deposit insurance, holding it does not earn interest, and most people cannot redeem it with the issuer directly — they buy and sell it on exchanges instead. One way to make it earn interest is to lend it out. Each point is explained below.
How does a USD stablecoin stay at $1?
The issuers of USDT and USDC state that every token in circulation is backed by reserve assets, and they publish reserve reports regularly.
| Comparison | USDT | USDC |
|---|---|---|
| Issuer | Tether | Circle |
| How the issuer describes 1:1 | Pegged 1:1 to the US dollar and backed by reserves | Circle commits to redeem 1 USDC for 1 US dollar, subject to its terms, the law, and fees |
| Reserve reports | Quarterly, with an assurance report from the accounting firm BDO | Monthly, with an assurance report from an accounting firm |
| Latest report | June 30, 2026: reserves of about US$187.75 billion against liabilities of about US$183.64 billion | August 31, 2026: about US$73.32 billion in circulation and about US$73.40 billion in reserves |
| What the reserves hold | According to Tether's website: about 75% in cash, cash equivalents, and short-term deposits (mostly US Treasury bills), plus about 10% precious metals, about 7% secured loans, about 3% bitcoin, and other items | According to Circle's website: mostly a BlackRock-managed government money market fund (US Treasury bills and Treasury repurchase agreements), with the rest in bank deposits, US Treasury bills, and similar |
A reserve report shows the position as of its reference date.
Who can exchange a USD stablecoin back for dollars?
Redeeming directly with the issuer has barriers, so in practice most people buy and sell on exchanges:
- USDT: under Tether's terms, only customers verified by Tether can issue or redeem directly; per its fees page, the minimum is US$100,000, and each redemption costs US$1,000 or 0.1%, whichever is higher.
- USDC: according to Circle, Circle Mint accounts — the accounts that can issue or redeem directly with Circle — are open to institutions only, not individuals.
So for most people, what 1 USDT is worth in dollars is the price on an exchange at that moment. That price is usually close to $1, but it is not guaranteed to be exactly $1 at all times.
How does a USD stablecoin differ from a US dollar bank deposit?
| Comparison | USD stablecoin (USDT, USDC) | US dollar bank deposit |
|---|---|---|
| What it is | A token issued by the issuer; Tether's terms state it is not fiat currency itself | A bank deposit |
| Deposit insurance | No. Taiwan's Central Deposit Insurance Corporation states that virtual assets are not covered, and both issuers' terms state that US deposit insurance does not apply | Yes for deposits at domestic insured banks in Taiwan: up to NT$3 million per depositor per bank, NT dollar and foreign currency combined |
| Interest | None from holding it. Circle's terms state that USDC does not itself generate interest or return | Per the bank's posted rate |
| Transfers | On a blockchain; you must choose the right network, and transfers cannot be reversed | Via bank wire |
| Getting dollars back | Most people sell on an exchange; direct redemption with the issuer has barriers | Withdraw from the bank |
Can a USD stablecoin lose its peg?
It has happened. "Depeg" means the trading price moves noticeably away from $1.
- USDC, March 2023: when Silicon Valley Bank (SVB) failed, US$3.3 billion of USDC reserves were still at the bank, and the price fell below $1; according to Taiwan's central bank, it dropped as low as US$0.85–0.87. After the US government announced full protection for SVB depositors, Circle announced that these reserves were fully available, and the price returned to around $1.
- USDT, May 2022: Tether said that USDT's price moved away from $1 on a few exchanges, while redemptions continued at 1:1.
That it happened before does not mean it won't happen again. Holding a USD stablecoin means accepting the risk that it may move away from $1.
Can a USD stablecoin earn interest?
Not from holding it. When you earn through lending, the interest comes from the borrower; Tether's own article also explains that stablecoin yield can come from holders lending their coins out, for example to leveraged traders on an exchange.
Taking Bitfinex as an example, the 30-day USDT lending rate over the past 12 months — the last trade of each day, calculated from official public data — had a median of about 7.30% APR (about 6.21% after the 15% platform cut on regular offers; the actual fee depends on the conditions that apply to your account), with a low of just 0.03% and a high of 23.54% on single days. This is the rate at which loans traded in the market, not your return: your actual return also depends on how much of the time your funds are actually lent out. Data as of 2026-10-20.
Lending also adds risk: the exchange's own risk and borrower-side risk; see Is Crypto Lending Safe. For other ways to earn yield on stablecoins, see Stablecoin Yield Compared; for how USDT lending works, see the USDT Lending Tutorial. If you're weighing USD stablecoin lending against a bank USD time deposit, see USD Time Deposit vs USD Lending.
If you decide to try it, Kindo can place lending offers on Bitfinex for you automatically: your funds stay in your own Bitfinex account, and Kindo uses a permission-limited API Key that cannot withdraw or trade.
Want your USDT lent out automatically without watching the market? Kindo offers a 14-day free trial; a trial is not a guarantee of returns. → Start Your 14-Day Free Trial
Disclaimer: This article is for informational purposes only and does not constitute investment, financial, or tax advice, nor a solicitation. Cryptocurrency and lending involve risk — returns are floating, not guaranteed, and principal loss is possible. Lending rates are determined by market supply and demand, and past performance is not indicative of future results. Please assess your own risk tolerance; consult a professional for tax matters.
