LESSON 6 · NOTES

Stablecoins: what USDT really is

USDT isn’t dollars — it’s one company’s promise. Let’s look at who makes that promise, what backs it, and what happens when it doesn’t hold.

Three takeaways

1. There’s always someone behind a stablecoin — and you need to know who. Behind USDT and USDC is a company with reserves that promises one-to-one redemption. Behind UST there was an algorithm. Who stands behind it determines whether the price comes back after a depeg.

2. USDT and USDC make up more than 80% of the market. They differ not in price but in where the company is based and who checks it.

3. Reserves decide whether the price comes back after a depeg. USDC, with reserves, returned to the dollar in two days. UST, without reserves, vanished for good.

1. What a stablecoin is

A stablecoin is a token whose price is pegged to the dollar: one token equals one dollar. It doesn’t rise or fall — that’s the whole point. It’s issued by an issuer — the company that created it. The issuer of USDT is Tether; the issuer of USDC is Circle. The issuer holds reserves — real dollars and US government bonds, a dollar for every token issued. And the issuer promises one-to-one exchange in either direction. That exchange is what holds the price. If USDT slips to $0.99 on an exchange, large players buy it at 0.99 and redeem it with Tether for 1.00. The demand pushes the market price back up. This is literally arbitrage — and it’s what keeps a stablecoin at one dollar.

2. Who issues them and what backs them

The whole stablecoin market is about $300 billion (September 2026). There are dozens of stablecoins, but two names hold more than 80% of the market — those are the ones we’ll cover.

• USDT · Tether — ≈ $183 billion, about 60% of the market. Company based in El Salvador. Reserves: ~80% US government bonds, plus gold and bitcoin.
• USDC · Circle — ≈ $74 billion, about 24%. Company based in the US, under regulatory oversight. Reserves: cash and short-term government bonds.

An attestation and an audit are different things. An attestation means an accountant confirmed the numbers added up on a specific date. An audit is a check of the whole year: where the numbers come from, where the assets are held, who the counterparties are. Circle undergoes a full audit regularly. For years Tether published only quarterly attestations; its first full audit (KPMG) took place in August 2026. In 2021 Tether paid the US regulator (CFTC) a $41 million fine for misleading statements about USDT’s backing in earlier years. Reporting has changed since then, but the story is worth knowing.

3. Why arbitrage is counted in USDT

On exchanges, the main trading pairs are against USDT: BTC/USDT, ETH/USDT and so on. USDC pairs exist too, and there are more of them every year, especially on US venues, but by volume USDT is still far ahead. A stablecoin rather than the dollar — because getting real dollars onto a crypto exchange is hard, while a stablecoin moves in a single transaction. That’s why prices, spreads and profits are mostly counted in USDT, and you keep it on every exchange.

With reserves, the price deviates and comes back. Without reserves, it may never come back.

4. Depeg: two real cases

A depeg (from “peg”) is when a stablecoin’s price moves away from the dollar.

1. USDC, March 2023. Of Circle’s roughly $40 billion in reserves, $3.3 billion sat in Silicon Valley Bank. On Friday the bank collapsed; over the weekend USDC fell to $0.87. On Monday the US government guaranteed the deposits, the money came back, and USDC returned to the dollar. Two days.

2. UST, May 2022. The third-largest stablecoin, with no reserves. Its price was held by an algorithm — a mechanism for swapping it into the LUNA token. In the panic the mechanism broke, and within a week UST went to zero. Around $40 billion vanished. Nothing came back.

3. USDT, May 2022. Amid the UST panic it fell to about $0.95 and recovered within a few hours — the reserves were there.

5. What this means for arbitrage

1. USDT is also an asset with more than one price. It trades at slightly different prices on different exchanges. Usually by fractions of a cent; under stress, noticeably — and you can see it in the order book.

2. A stablecoin carries issuer risk. The risk that the company lets you down. Bitcoin has no such risk. For a trader who parks USDT between trades, it’s an occasional concern; for an arbitrageur whose entire capital sits in stablecoins all the time and on every exchange, it’s a constant background cost, counted alongside fees.

3. Don’t keep everything in one stablecoin. Holding all your working capital in USDT is a bet on a single company.

Splitting it between USDT and USDC is basic hygiene.

Terms

• Stablecoin — A token pegged one-to-one to the dollar.

• Issuer — The company that issued the token and promises to exchange it for a dollar. Tether for USDT, Circle for USDC.

• Reserves — The dollars and government bonds the issuer holds against the tokens it has issued.

• Peg — Keeping the token’s price at one dollar.

• Depeg — A stablecoin’s price deviating from the dollar.

• Attestation — An accountant’s confirmation that the numbers added up on a specific date. A snapshot of a single day.

• Audit — A review of a full year’s reporting: where the numbers come from, where the assets are held, who the counterparties are.

• Algorithmic stablecoin — A stablecoin without reserves, where the peg is held by a mechanism for swapping into another token. Example: UST. There’s also a third type — crypto-backed stablecoins (for example, DAI) — not covered in this lesson.

• Issuer risk — The risk that the issuing company fails to honor its redemption promise.

Test yourself

What does “100 USDT on your balance” actually mean?
A hundred tokens from Tether and its promise to exchange each one for a dollar. Not the dollars themselves.

Why did USDC return to the dollar in 2023 while UST in 2022 did not?
USDC had reserves: as soon as the money came back from the bank, one-to-one redemption was restored. UST had no reserves — its price was held by an algorithm, and when that broke, there was nothing to bring it back with.

How does an attestation differ from an audit?
An attestation confirms the numbers on a single date. An audit checks the whole year, including where the numbers come from and where the assets are held.

Figures checked on September 8, 2026. Market sizes change over time; dates and events do not.

Next lesson: fees — what you pay for on the exchange and on the network, and why the number in the scanner isn’t yet what you’ll actually get. Trade breakdowns and what’s happening in the market — on our Telegram channel @arbiq_ai · t.me/arbiq_ai

This material is for educational purposes only and is not investment advice. Any trading decisions are yours alone and made at your own risk.