Stablecoins are digital assets that aim to maintain a constant value relative to another (pegged) asset. Traditionally, the reference asset has been an off-chain fiat currency, most commonly the US dollar. Stablecoins are becoming a buzzword in the traditional financial space and serve as an entry point for many into crypto.

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The global stablecoin market capitalisation stands at approximately $245B. Citi Group’s base case, however, estimates that this could grow to be a trillion-dollar industry in the next 10 years. This is expected to be motivated by big entrants – the likes of major governments and banks entering the space. In particular the European Central Bank is testing and developing a Digital Euro. Separately the likes of Bank of America, Santander and JPMorgan have all announced stablecoin plans. 

JPMorgan already has a private US dollar-backed digital token, JPM Coin, which is available exclusively for settling institutional client transactions on its private blockchain Onyx. There has been speculation that JPMorgan is set to release a new stablecoin-like "deposit token" on a public blockchain, JPMD (JPMorgan Dollar), which represents a dollar's worth of bank deposits. 

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Stablecoins can be broadly classified by the mechanism that maintains their value peg and how the reserves that guarantee that peg are held. Fully collateralised stablecoins are backed 1:1 by reserves, ensuring redemption at face value. These can be backed by different assets such as fiat, crypto, or commodities. The most popular method is to back the stablecoin token using real-world assets held off-chain, usually cash or more liquid government treasuries (in the case of US dollar stablecoins, this generally means T-bills). However, some commodity-backed coins exist that peg their value to the price of gold or other commodities. Non- or under-collateralised types, such as algorithmic stablecoins, rely on smart contracts to maintain their value. The smart contracts manipulate the supply of the token by buying and selling the token so as to maintain value relative to the reference asset.

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Fiat-Collateralised Stablecoins 

The stablecoin space is heavily dominated by two incumbents, Circle (USDC) and Tether (USDT), which together make up 85.7% of the total stablecoin market. Other stablecoins are a fraction of the size of these market leaders. Both USDT and USDC are fiat-collateralised stablecoins, representing the value of a US dollar on-chain. 

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In general, most reserve-backed stablecoins are administered and distributed by a single organisation. Their pegs are usually maintained by the promise of redemption of each token for the pegged value of the asset on demand – since the on-chain asset is backed by a reserve off-chain, controlled or custodied by the distributing organisation. 

Tether (USDT)

While not the very first to be minted, Tether (USDT) became the first stablecoin to gain widespread use after it was launched in 2014 under the original name “Real Coin.” – promising that each token was backed 1-to-1 by safe, dollar-denominated assets held in reserve. USDT's popularity grew in tandem with the 2017 BTC bull run, with 1.4 billion tokens minted by January 2018. Now, with a market capitalisation of $155.23 billion, USDT accounts for over 60% of the $245 billion global stablecoin market. 

Today, USDT is deployed on more than 13 blockchains, with major concentrations on TRON (approximately 53 billion USDT in circulation) and Ethereum (approximately 41 billion USDT), and additional supply circulating on Solana, Arbitrum, BNB Chain, Avalanche, and Polygon. It is the most commonly used quote currency on top centralised exchanges, including Binance, OKX, and Bybit, and plays a foundational role in decentralised finance (DeFi) ecosystems. 

Customers that want to mint USDT tokens directly with Tether must pass a KYC procedure. However, once minted, coins are freely traded on the secondary market. 

Reserves

Tether maintains the peg of USDT by promising the redemption of tokens at the value of $1. It is able to promise that redemption as it claims to hold dollar deposits and other liquid assets at a 1:1 ratio to tokens in circulation – “All Tether tokens are pegged at 1-to-1 with a matching fiat currency and are backed 100% by Tether’s Reserves”. 

According to Tether’s own disclosure, their reserves comprise of:

Additionally, Tether disclosed in Q1 2025 that it held $5.6B in excess reserves as a capital buffer to absorb redemption demand and enhance market stability.

However, despite this 1-1 backing claim, over 10% of Tether’s reserves consist of more volatile assets such as precious metals, Bitcoins, secured loans and other investments, with only 81.49% being backed by Cash & Cash Equivalents & Other Short-Term Deposits, according to their attestation.

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Tether has faced scrutiny in the past over its claim of backing each USDT token with $1, and have been historically vague in their disclosures about what backs USDT. In October 2021, Tether Holdings Ltd was ordered to pay $41 million in fines to the Commodity Futures Trading Commission (CFTC) for “making untrue or misleading statements and omissions of material fact” regarding their reserves. This followed another long-running legal dispute that concluded in February 2021 with an $18.5 million fine paid to the New York Attorney General’s Office. As a result, Tether can no longer legally operate in the state of New York. 

In response to these controversies, Tether now provides attestation reports each quarter under the “Transparency” section of their website. Those reserve attestations are audited quarterly by BDO Italia, a top-five global accounting network, offering partial transparency into Tether’s backing. However, beyond these attestations, Tether has never completed a full, independent audit of its reserves. 

Despite the scrutiny, Tether has so far stood the test of time, reliably honouring redemption requests in all market conditions. For example, when the historic stablecoin Terra’s UST depegged from the market in May 2022, it sent shockwaves through the stablecoin market. This  amounted to more than $7B USDT redemptions caused by a drop in stablecoin trust. Yet, Tether was able to process more USDT redemptions than they claimed to hold in cash reserves, presumably through the sale of their non-cash assets.