What are digital dollars, and who stands behind them?

A dollar can be held in three ways. In a bank account, it’s a debt the bank owes you, usually insured up to a limit. As a bill in your pocket, it’s legal tender, and no one can stop you handing it over. A digital dollar is a third way: a token on public blockchains that you can send to anyone, at any hour, with no bank in the middle. It’s worth a dollar because a company holds assets for every token and pays a dollar when one is handed back. So the question isn’t whether a digital dollar is a dollar, but whether its issuer will pay, how fast, and when it can refuse.

Digital dollars are stablecoins tied to the US dollar, and two of them make up most of what circulates. In early November 2026, according to DefiLlama, about 178 billion USDT, issued by Tether, and 71 billion USDC, issued by Circle, were in circulation: about 60% and 24% of all digital dollars. Both work the same way. What differs is the company behind each one, what it holds and what it may do.

Who issues them

Tether launched USDT in 2014, according to the CFTC. The company that issues it, Tether International, announced in January 2025 that it was moving from the British Virgin Islands to El Salvador, which had licensed it as a stablecoin issuer. According to its own report, it’s supervised there by the National Commission of Digital Assets and is registered in the US as a money services business. Its terms, governed by the law of the British Virgin Islands, close its services to people in the United States, except for some large investors it approves. For that market, Tether launched a separate token in January 2026, USAT, issued by Anchorage Digital Bank under the supervision of the OCC, a US bank regulator.

Circle, a company headquartered in New York and listed on the New York Stock Exchange, launched USDC in September 2018. Until August 2023 its rules were set by Centre, a consortium Circle had co-founded; since then, Circle has run USDC alone and holds all the keys to its smart contracts. In the US, it holds New York’s virtual currency licence and state money transmitter licences, and has a preliminary, conditional approval from the OCC to open a national trust bank, according to its annual report. In the European Union, its French company issues USDC under an electronic money licence granted in July 2024.

Both issue a token for every dollar they receive and take one out of circulation for every dollar they pay back.

What backs them

At the end of September 2026, according to Circle’s monthly report, about 74 billion USDC were in circulation, and the reserves behind them held slightly more, about 74 billion dollars:

• about 84% in the Circle Reserve Fund, a government money market fund registered with the SEC and managed by BlackRock, which holds short-term US Treasury bills and overnight loans backed by Treasuries;
• about 13% as cash in banks;
• most of the rest in Treasury bills that Circle holds directly.

The reserves sit in accounts held for USDC’s holders, apart from Circle’s own money, and Circle says it doesn’t lend them or borrow against them.

On the same day, according to Tether’s quarterly report, Tether owed about 183 billion dollars in tokens and held about 191 billion in assets:

• about 64% in US Treasury bills;
• about 9% in repurchase agreements, short-term loans backed by securities;
• about 10% in gold;
• about 7% in loans secured by collateral;
• about 4% in bitcoin;
• the rest, about 5%, in shares, other investments and bonds.

The gap, about 8 billion dollars or 4% of what Tether owed, is the cushion that would take a fall in the price of the gold, the bitcoin or the shares, or a loan that wasn’t repaid.

The two are checked differently. Circle publishes what its reserves hold every week, and an accounting firm, Deloitte, examines them every month. Tether publishes a report every quarter, checked by another firm, BDO, as of a single day, the last of the quarter; BDO says it gave no assurance about any other date. In August 2026, Tether said KPMG had audited its accounts for 2025, its first full audit, but it didn’t publish them, according to Reuters.

A US law passed in July 2025, the GENIUS Act, makes Circle’s kind of reserve mandatory for payment stablecoins from January 2027: cash, bank deposits, Treasury debt maturing within 93 days, overnight loans backed by Treasuries and funds that hold only these, with the composition published every month. Gold, bitcoin, loans and shares aren’t on the list; at the end of September 2026 they made up about 24% of USDT’s reserves. In the European Union, the European Banking Authority classified USDC as “significant” in October 2026, which puts its reserves under the authority’s direct supervision from November.

Who can turn them back into dollars

Outside the European Union, Circle pays a dollar for each USDC only to its direct customers, companies it has approved: exchanges, trading firms, banks. It says that service isn’t open to individuals or small businesses. In the European Union, the law gives holders the right to redeem at face value from the issuer, and Circle’s French company redeems for individuals who meet its requirements.

Tether pays a dollar for each USDT only to its verified customers, companies or individuals, outside the countries its terms exclude. According to its fees page, it redeems from 100,000 dollars at a time, for 0.1% or 1,000 dollars, whichever is more, and charges 150 dollars to verify a customer. Its terms let it delay or suspend redemptions at its sole discretion.

Everyone else sells digital dollars on an exchange or in an app, at the market’s price, plus whatever the platform charges. What normally keeps that price at a dollar is trading by the issuer’s direct customers: when a token sells for less, they can buy it and hand it to the issuer for a full dollar. That works only while the issuer is paying out, and its payouts depend on banks being open.

The day USDT slipped

On Thursday, May 12, 2022, after another stablecoin, TerraUSD, had collapsed, USDT traded as low as 95 cents on some exchanges, according to CNBC. Tether kept paying: it said it would process more than 2 billion dollars of redemptions that day, and later that it had processed 10 billion dollars since May 11, according to Fortune. By that afternoon USDT traded at about 99.8 cents, by Coin Metrics’ count.

Holders who waited, or who could hand their tokens to Tether, got a dollar each; those who sold that morning on an exchange sold for less. A depeg lasts as long as holders doubt the issuer will pay.

The weekend USDC wobbled

On Friday, March 10, 2023, Silicon Valley Bank failed. That night, Circle disclosed that 3.3 billion dollars of USDC’s reserves, about 8% of them, were deposited there. It stopped paying out for the weekend, citing the working hours of US banks, and holders rushed to sell: USDC traded as low as 86 cents, according to the Federal Reserve. On Sunday, the US Treasury, the Federal Reserve and the FDIC announced that every depositor of the bank would be protected. On Monday, Circle resumed payouts and USDC was back at a dollar. By Wednesday, Circle said, it had paid out 3.8 billion dollars for tokens handed back. Over the same weekend, as money moved to the tokens the bank’s failure didn’t touch, USDT traded slightly above a dollar, according to the Federal Reserve.

Holders who waited lost nothing; those who sold that weekend sold for less than a dollar. For a weekend, the price of a digital dollar depended on whether one bank’s depositors would be made whole. A token backed by reserves is only as safe as the places they’re kept.

What regulators found about Tether

In 2021, two US authorities settled cases over what Tether had said about its reserves. In February, the New York Attorney General found that from mid-2017 Tether, with no access to banks, at times didn’t hold a dollar for every token in circulation; and that Bitfinex, a crypto exchange owned and controlled by the same small group of people, had about 850 million dollars go missing at a payment processor, and that the two companies misled their clients about it. They paid 18.5 million dollars in penalties, stopped serving New Yorkers and agreed to disclose what backs their tokens, by category, including loans to or from related companies.

In October, the CFTC found that Tether had held enough money to back every token on only 27.6% of the days in a 26-month sample from 2016 to 2018; that it had kept reserves with unregulated third parties and mixed them with Bitfinex’s funds; and that it hadn’t completed the audits it said it would. Tether paid 41 million dollars.

How much trust they’ve had

The number of tokens in circulation rises when people hand the issuer dollars and falls when they hand tokens back, so it measures confidence. USDT’s fell from just over 83 billion on May 11, 2022, to about 73 billion by May 23, according to Fortune. According to Circle’s filings, about 50 billion USDC circulated on average in 2022. The number then fell for about a year, to about 24 billion at the end of 2023, from 45 billion a year earlier; Circle has said the bank failure was one of the causes. It climbed back to 44 billion at the end of 2024 and 75 billion at the end of 2025. USDC didn’t pass its 2022 high until February 2025, according to CoinDesk.

S&P Global Ratings scores stablecoins from 1, very strong, to 5, weak, on their ability to hold their peg. In November 2025 it cut USDT from 4, constrained, to 5, weak, citing more higher-risk assets in the reserves, such as bitcoin, gold, secured loans and corporate bonds, and the limited information Tether gives about the creditworthiness of its custodians, counterparties and banks, according to Reuters. S&P also noted USDT’s “notable level of price stability.” USDC was at 2, strong, as of December 2025, as it had been a year before. Both scores still stood in S&P’s update of August 2026.

Who can freeze them

USDC’s contract lets Circle block an address: it can no longer send or receive, and all the USDC in it is stuck. On Ethereum and the networks built like it, the contract also lets Circle pause every transfer at once, which its documentation reserves for a serious bug or a stolen key, and replace the contract’s code. USDT’s contract on Ethereum, according to its published code, lets Tether block an address and also destroy the tokens in it, pause every transfer and move the token to a new contract.

Circle’s policy is to block addresses to comply with laws, sanctions and court orders, on urgent police requests, and when a breach threatens USDC itself. Its terms go further: Circle may block any address it decides, “in its sole discretion,” may be tied to illegal activity, and a blocked holder may lose the right to redeem. Tether’s terms let it freeze or seize tokens as the law requires, or wherever it decides, “in its sole discretion,” that it’s prudent. From January 2027, US law requires issuers to be able to freeze, seize or burn their tokens on a lawful order. At the end of September 2026, about 131 million USDC sat in blocked addresses, according to Circle’s report. In April 2026, Tether said it had frozen more than 4.4 billion dollars in all, working with more than 340 law enforcement agencies in 65 countries, according to The Block.

When	What happened	Why
August 2022	Circle blocked the addresses of Tornado Cash, a service that mixes crypto transactions to hide where they came from, freezing at least 75,000 USDC, according to The Block.	US sanctions, lifted in March 2025
January 2026	Tether froze more than 182 million USDT in five addresses on TRON, according to The Block.	A formal request from law enforcement, Tether said
March 2026	Circle froze the USDC in 16 wallets of exchanges, casinos and currency traders with no apparent link to each other, according to an on-chain investigator. It released one within days, after public criticism, without confirming what the freeze was based on.	A civil case in the US, according to one of the businesses
April 2026	Attackers took about 280 million dollars from Drift, a trading platform. According to The Block, about 230 million of it was USDC, moved through Circle’s own service from one network to another. Circle froze none of it.	No order: Circle freezes only when the police or the courts direct it, its chief executive said
April 2026	Tether froze more than 344 million USDT in two addresses on TRON, according to The Block.	Information from OFAC, the US sanctions office, and US law enforcement
May 2026	Circle froze USDC at the center of a lawsuit. It sat in a contract shared by every user of Zama’s private version of USDC, so all of them were locked out: about 12.6 million USDC by The Block’s count, nearly all of it the disputed deposit, according to Zama. The court lifted the order days later.	A federal judge, in a lawsuit against a crypto project’s creator, without hearing the other side

Two things follow. An order aimed at someone else can reach your digital dollars if they sit in the same address, such as an exchange’s wallet or a shared contract. And a freeze isn’t there to protect you: both issuers act on requests from the police, the courts or governments, so if your tokens are stolen, they won’t block the thief on your word.

This holds whoever keeps the keys: a wallet you control protects your digital dollars from an exchange freezing your account, not from their issuer. It’s one of the differences between digital dollars and bitcoin, which has no issuer to freeze it.

What if the issuer failed

A digital dollar isn’t a bank deposit. The GENIUS Act says so plainly: a payment stablecoin isn’t backed or guaranteed by the US government, isn’t covered by FDIC deposit insurance, and can’t be marketed as legal tender. Tether’s terms say the same of USDT: it isn’t legal tender, isn’t backed by any government and isn’t insured.

If Circle went bankrupt today, what holders would get isn’t certain, as its own annual report says. Circle’s view is that the reserves belong to the holders, not to the company, though even then holders “may still experience delays in recovering the underlying assets.” If a court disagreed, holders could be treated as general unsecured creditors, in line with everyone else Circle owed. Tether’s terms don’t say the reserves belong to holders, and they allow the reserves to include loans to companies related to Tether. That’s the counterparty risk of any stablecoin.

From January 2027, the GENIUS Act settles most of this for US issuers: the reserves the law requires stay out of a bankrupt issuer’s estate, and holders’ claims on them come before everyone else’s. Payouts would still stop until the court allowed them, and the law asks the court to try to start paying holders within 14 days of a hearing. Tether, in El Salvador, isn’t a US issuer.

They pay nothing

“USDC does not itself generate any interest or return for holders of USDC,” Circle’s terms say. The reserves do earn interest, and it goes to Circle: according to its annual report, in 2025 income from the reserves made up 96% of Circle’s revenue of about 2.7 billion dollars, and Circle paid about 1.7 billion dollars in distribution and transaction costs, much of it to exchanges that offer USDC to their customers. Tether’s terms promise holders no return either, and Tether keeps what its reserves earn: by its own account, 4.5 billion dollars of operating profit in the first nine months of 2026. The GENIUS Act forbids issuers from paying interest to holders. When a platform offers a return on digital dollars, the money comes from the platform, not from the token, and it’s worth asking where the platform gets it.

Where the rules hold them back

In the European Union, USDC is authorized under MiCA, the EU’s crypto law. Tether had no licence there, its chief executive told Reuters in January 2025, and platforms licensed in the EU have stopped trading USDT for their European clients: Kraken, for one, lets them only deposit or withdraw it. In October 2026, ESMA, the EU’s markets authority, said licensed platforms should stop every service around stablecoins not authorized under MiCA, holding and transferring them included, and deal with what their clients already hold within three months.

In the United States, from July 2028, the GENIUS Act lets platforms offer people only stablecoins from issuers it permits, or from foreign issuers under rules the US Treasury finds comparable, registered with the OCC and holding enough reserves in a US institution for their US customers. Tether’s token for that market is USAT, not USDT.

One dollar, many networks

As of September 2026, Circle issued USDC directly on 38 blockchains, among them Ethereum, Solana, Base, Arbitrum, Avalanche and Polygon. Tether issued USDT on 13, among them Ethereum, TRON, Solana, TON and Avalanche, and more than half of all USDT sat on TRON in early November 2026, according to DefiLlama. A token is the same dollar on each of its networks, but a transfer has to stay on one network, the same for the sender and the receiver. Digital dollars sent on a network the receiving wallet or exchange doesn’t support may never arrive: transfers can’t be reversed, and Circle’s terms leave the loss from a wrong address with the sender.

Networks can also be dropped. Circle stopped issuing USDC on TRON in February 2024 and on Noble in October 2026, and ended support on Flow in September 2024. Two years later, about 993,000 USDC were still on Flow, permanently frozen, according to Circle’s reserve report. Tether stopped redeeming USDT on five blockchains, among them EOS, Algorand and Bitcoin’s Omni layer, on September 1, 2025.

Some networks also carry bridged tokens: copies made by a third party and backed by tokens locked on another blockchain. Bridged USDC is often labelled “USDC.e”; Circle doesn’t issue it, and tells its customers not to send it to their Circle accounts. On Arbitrum, what’s labelled USDT is USDT0, a bridged token backed by USDT locked in a contract on Ethereum.

To move USDC from one network to another, Circle runs a service that destroys it on the first and creates it on the second, in seconds or minutes. Each network also charges a small fee for every transfer, paid in its own coin, though some apps pay it for you.

How fast and how cheap they move

On the network itself, a transfer of digital dollars is quick and cheap. The time and the money go into getting in and out.

In March 2026, Italy’s central bank sent 200 USDC between exchanges in Italy and five other countries, ten routes in all, timing and pricing every step. The transfer itself, on Ethereum, took under 15 minutes on seven of the eight routes it compared and cost 0.4% of the amount on average, about 80 cents; one on Solana cost 0.15%. The whole trip, from one currency into USDC and out into another, cost from 0.30% to nearly 9%, depending on the route, the exchanges and how the money was paid in. It took under 20 minutes where both countries had instant bank payments, and one or two business days where they didn’t. On five of the eight routes, that was less than the 6.4% that sending money abroad costs on average, according to the World Bank figures the study cites; but a money transfer company quoted less on four of the seven routes it listed. The study’s verdict: “no systematic cost advantage over traditional channels.”

The test ran while Ethereum was quiet. Network fees rise when a network is busy, as Ethereum’s did in March 2024.

USDT and USDC side by side

	USDT	USDC
Issuer	Tether, based in El Salvador	Circle, based in New York
In circulation, end of September 2026	About 183 billion	About 74 billion
What backs it	About 73% Treasury bills and repurchase agreements; the rest gold, loans, bitcoin, shares and other investments	Treasury bills, overnight loans backed by them, and cash
Reserve reports	Every quarter, checked by BDO as of one day; its 2025 accounts audited by KPMG, not published	Holdings every week, examined every month by Deloitte
Who can redeem it	Tether’s verified customers, from 100,000 USD, outside the countries its terms exclude, the US among them	Circle’s approved business customers; in the EU, individuals too
Can the issuer freeze it	Yes	Yes
In the EU	No licence; licensed platforms stopped trading it	Authorized under MiCA
S&P’s score, August 2026	5, weak	2, strong
A slip below a dollar	95 cents on some exchanges, May 2022	86 cents, March 2023

Bank account, digital dollars or cash

	Dollars in a bank	Digital dollars	Dollar bills
Who stands behind it	The bank, and often deposit insurance: in the US, the FDIC covers at least 250,000 USD per bank	The issuer and its reserves, with no government guarantee	The US government: it’s legal tender
Who can freeze it	The bank, a court, a government	The issuer, in any wallet, and whoever holds it for you	No one from afar, though it can be lost, stolen or seized
When it moves	On banking days, or at any hour where there are instant payments	At any hour, but payouts in dollars run on bank hours	Hand to hand
Across borders	Through banks, often slowly and at a cost	To any address on the same network, as it would next door	Only if carried
Interest	Some accounts pay it	None	None

What to do

Digital dollars are good for holding US dollars without a dollar account at a bank, and for sending them to anyone, at any hour, for little more than the cost of getting in and out. In exchange, you accept that a company, not a government, has to pay you; that an order you never hear about can freeze them; and that turning them back into dollars runs on bank hours.

• Know which one you hold. USDT and USDC are different promises from different companies: read what backs each, who checks it and where it’s allowed.
• Use the issuer’s own token, on a network both sides support. A bridged copy adds the bridge’s risk to the issuer’s. Check the network every time, and send a small amount first to any new address.
• Keep everyday dollars in a wallet you control. On an exchange, the exchange’s freezes and failures come on top of the issuer’s; custodial or self-custody goes through them.
• If you keep savings in digital dollars, keep them where no single key or company can move them, as the guide on hardware wallets, multisig and collaborative custody explains. No setup protects them from their issuer.
• Treat any return on digital dollars as a loan to whoever pays it: the tokens pay nothing, so they’re earning it somewhere else.
• If you’re robbed, don’t count on a freeze. Issuers act on requests from the police, the courts or governments, if one comes in time. Your keys are your protection.
• Keep a cushion elsewhere. A freeze, a bank weekend or one issuer’s trouble can hold your dollars for days. If that would hurt, keep part of your money where those risks don’t reach.