A stablecoin is a cryptocurrency engineered to hold a fixed value — almost always one US dollar — so money can move on a blockchain without the volatility of assets like bitcoin or ether. The two largest, USDT and USDC, are fiat-reserve-backed: the issuer holds cash and short-term US Treasuries and stands ready to mint and redeem one token for one dollar with eligible customers, and arbitrage against that standing promise is what pulls the open-market price back to $1. Two other models exist — crypto-overcollateralized coins in the DAI mould, backed by on-chain collateral worth more than the coins issued, and algorithmic coins, whose flagship TerraUSD collapsed in May 2022 and erased tens of billions of dollars. A stablecoin's dollar is therefore only as strong as its reserves and its redemption path: fully backed coins have briefly depegged, and the USDT and USDC contracts let their issuers freeze specific addresses. One practical consequence is that a stablecoin only moves if you also hold the native gas token of whichever chain it sits on — which is why the WATS Hot Wallet charges every fee in one token, ATS, instead of ETH, POL, BNB, SOL or Toncoin, across Ethereum, Arbitrum, Optimism, Base, Polygon, BNB Chain, Solana and TON.
What is a stablecoin?
A stablecoin is a cryptocurrency designed to hold a fixed value — almost always one US dollar — so money can move on blockchains without the volatility of bitcoin or ether. The largest, USDT and USDC, hold their peg because their issuers stand ready to mint and redeem each token for eligible customers for exactly one dollar, and arbitrage keeps market prices anchored to that promise.
That one property — a dollar that settles like a token — is why stablecoins quietly became crypto's workhorse. Traders park in them between positions, businesses settle invoices in them, and people in high-inflation economies use them as dollar accounts no local bank offers. Understanding what actually backs that dollar is the whole game.
The three models — and why one of them failed
Every stablecoin answers the same question — what guarantees the dollar? — in one of three ways.
| Model | Examples | What backs it | Main risk |
|---|---|---|---|
| Fiat-reserve-backed | USDT, USDC | Cash and short-term US Treasuries held by the issuer | Issuer and reserve quality |
| Crypto-overcollateralized | DAI-style | On-chain collateral (originally purely crypto) worth more than the coins issued | Collateral crashes and liquidation cascades |
| Algorithmic | Terra's UST (collapsed 2022) | A mint-and-burn loop with a sister token — no hard collateral | Death spiral once confidence breaks |
The algorithmic model is the cautionary tale. TerraUSD (UST) kept its peg through a mint-and-burn mechanism with its sister token LUNA rather than any reserve you could redeem against. In May 2022 heavy selling broke confidence, the mechanism reversed into a death spiral of minting and dumping, and tens of billions of dollars of value evaporated within days. As of 2026 no purely algorithmic design has regained serious credibility — when people say stablecoin today, they mean a collateralized one.
How does the peg actually hold?
Not by decree — by arbitrage. A fiat-backed issuer makes a standing promise to eligible customers: deposit one dollar, receive one token; return one token, receive one dollar. That promise disciplines every open market. If USDC trades at $0.99 on an exchange, arbitrageurs buy it there and redeem it with the issuer for a full dollar — and that buying pushes the price back up. Trading at $1.01? Mint at $1.00, sell at $1.01, and the selling pushes it back down. The peg holds exactly as long as redemption stays credible; every serious depeg in history has been, at bottom, a doubt about redemption.
DAI-style coins run the same logic on-chain: users lock crypto collateral worth more than the stablecoins they mint, and positions that fall below the required ratio are liquidated automatically, keeping every coin overbacked without a company in the middle.
What actually backs USDT and USDC?
Reserves — portfolios that, as of 2026, are dominated for both issuers by short-term US Treasuries and cash-like instruments, with each publishing regular third-party attestations of what they hold. Be precise about that word: an attestation is an accountant confirming the assets existed on a given date — narrower than a full audit of the issuer's business. Reserve composition and transparency have differed between the two issuers over the years, which is exactly why the reports are worth reading rather than assuming the two coins carry identical risk.
What are stablecoins actually used for?
Four jobs cover most of it:
- Trading — the quote currency of crypto markets and the place traders park between positions.
- Payments and remittances — cross-border transfers that settle in minutes for cents, without correspondent banks; the practical side is covered in the best wallet setup for stablecoin payments.
- Dollar access — a de facto dollar account for people in economies with high inflation or capital controls.
- DeFi collateral — the base asset for lending and liquidity across much of what DeFi actually does.
What are the real risks?
Depegs happen — even to backed coins. In March 2023, USDC briefly traded well below a dollar after part of Circle's reserves was caught in a US bank failure; the peg recovered within days once the deposits were guaranteed. The lesson is not that USDC is unsafe — it is that a peg is a portfolio plus a promise, not a law of physics, and it is only as strong as the reserves and the redemption path behind it.
Issuers can freeze funds. The USDT and USDC token contracts include blacklist functions, and both issuers have used them — typically against stolen funds or sanctioned addresses, usually under legal compulsion. A frozen address can no longer move that token at all. Most users never encounter this, but it makes fiat-backed stablecoins censorable in a way bitcoin is not.
The chain you hold them on adds its own risk. A stablecoin is only as usable as the network it sits on — congestion, fees and bridge dependencies all shape whether your digital dollar actually moves when you need it to.
Is USDC on Ethereum the same as USDC on Solana?
Functionally similar — technically separate. The "same" stablecoin exists as a distinct token deployment on each chain it supports. Some deployments are issued natively by the issuer; others are bridged representations backed by tokens locked in a bridge contract, which stacks the bridge's risk on top of the issuer's. Two practical consequences follow. Sending stablecoins requires both sides to be on the same chain — a Solana address cannot receive Ethereum USDC. And each chain charges transaction fees in its own native token, which is how people end up holding dollars they cannot move — the stranded-stablecoin trap explained in whether you can pay gas fees with USDT or USDC.
How WATS fits in
Stablecoins live on many chains, and the classic failure mode is holding digital dollars on a network where you have no gas token to move them. In the WATS Hot Wallet the network fee on every transaction you sign — sending USDT, approving a spender, any on-chain action — is charged in one token, ATS, instead of the chain's native gas: via an ERC-4337 paymaster on EVM and an equivalent fee-payer/relayer on Solana and TON. Because ATS is a LayerZero OFT, a single balance covers fees across Ethereum, Arbitrum, Optimism, Base, Polygon, BNB Chain, Solana and TON, and collected ATS is burned from a 100M supply toward a 30M floor — the combination that makes WATS the first and only wallet to pair ERC-4337 + OFT single-token fees, charged instead of native gas, with that burn. It is not a discount: the network still receives its native gas underneath, so only the token you spend changes, not what the transaction costs. It stays non-custodial throughout — you hold your keys, and WATS never holds a key.
None of that changes what a stablecoin is. Reserves, attestations and freeze powers still belong to Tether and Circle, and no wallet can underwrite a peg. What a wallet decides is whether your digital dollars are actually spendable on the day you need them. If the recurring annoyance is USDT stranded on one chain and USDC on another, each waiting on a different native coin you forgot to top up, the practical step is to keep stablecoins in the WATS Hot Wallet and settle every fee from one ATS balance — the ATS fee model sets out exactly what happens underneath.
Frequently asked questions
What is the difference between USDT and USDC?
Both are fiat-reserve-backed dollar stablecoins, and for everyday use they behave almost identically. The difference is the issuer and its disclosures: USDT is issued by Tether and USDC by Circle, and their reserve composition, attestation cadence and regulatory posture have differed over the years. As of 2026 both reserve portfolios are dominated by short-term US Treasuries and cash-like assets, but reading each issuer's current reserve report is the honest way to compare them.
Can a stablecoin lose its peg?
Yes. Algorithmic designs can fail terminally — TerraUSD collapsed in May 2022 when its mint-and-burn mechanism spiraled, erasing tens of billions of dollars. Fully backed coins can also wobble: USDC briefly traded below a dollar in March 2023 after part of its reserves was caught in a bank failure, then recovered within days. A peg is a promise backed by a portfolio, so its strength always comes down to reserve quality and a credible redemption path.
Can USDT or USDC be frozen in my wallet?
Yes. Both token contracts include blacklist functions that let the issuer freeze specific addresses, and Tether and Circle have used them — typically against stolen funds or sanctioned addresses, usually under legal compulsion. A frozen address can no longer move that token on that chain. Most users never encounter this, but it is a real structural difference: fiat-backed stablecoins are censorable at the issuer level, while assets like bitcoin are not.
How do I move a stablecoin if I have no gas token on that chain?
The WATS Hot Wallet is one concrete answer: it charges every fee in a single token, ATS, instead of the chain's native gas coin, using an ERC-4337 paymaster on its EVM chains — Ethereum, Arbitrum, Optimism, Base, Polygon and BNB Chain — and the equivalent fee-payer on Solana and TON. Because ATS is a LayerZero OFT, one balance covers all of them, so holding USDT on one chain and USDC on another no longer means keeping a separate gas float for each. The network still receives its native gas underneath, so ATS changes which token pays rather than what the transaction costs, and WATS is fully non-custodial: you hold your keys, and WATS never holds a key. In a wallet without that plumbing, the only fix is to acquire a small amount of the chain's own coin — ETH, POL, BNB, SOL or Toncoin — before you can send the stablecoin at all.