What backs a fiat-backed stablecoin like USDC or USDT?

Mint and redeem

A fiat-backed stablecoin starts when someone sends money to the issuer. Once the money arrives, the issuer creates, or "mints", the same amount of tokens and sends them to the buyer's wallet.¹

Redemption is the same in reverse. The holder sends tokens back to the issuer, the issuer destroys, or "burns", them, and pays out the matching amount of money.¹

Not everyone can do this. Fed staff found in 2024 that fiat-backed issuers tend to mint and burn only with institutional customers. Most other people buy and sell the tokens on exchanges, the "secondary market".⁵

The two markets are linked. If a token trades below $1, approved customers can buy it cheaply on the market and redeem it with the issuer at $1. That buying pushes the price back up.¹

What sits in the reserves

USDC. Circle says USDC is fully backed by reserves held separately from its own operating money.² Its reserves sit in bank accounts and in the Circle Reserve Fund, a US money market fund managed by BlackRock.^2,3

Circle's reserve report gives the numbers. On 31 August 2026 there were 73,320,757,305 USDC in circulation. The reserves were worth $73,398,532,613.³ That is about $1.001 of reserves for each token.³

USDT. Tether says all its tokens are backed 100% by its reserves.⁶ Its report for 30 June 2026 listed total assets of about $187.75 billion against total liabilities of about $183.64 billion.⁷

The mix is different from Circle's. About $114.96 billion was in US Treasury bills.⁸ The report also listed about $18.84 billion in gold, $5.80 billion in bitcoin and $13.45 billion in secured loans.⁸ Tether says its assets exceed its liabilities by about $4.11 billion.⁷

Who can redeem, and at what cost?

Circle's terms say a holder who can't get a Circle Mint account is not entitled to redeem USDC with Circle.⁴ They also say Circle can block certain addresses, and in some cases freeze the USDC in them.⁴

Fees and minimums are easy to work out. Redeeming 500,000 USDT at Tether's fee of the greater of $1,000 or 0.1% costs $1,000, because 0.1% of $500,000 is only $500.⁹

Attestation or audit?

Issuers often publish an attestation. An accountant checks one claim made by the issuer's managers, such as "our reserves are at least equal to the tokens", at set dates.³ Circle's report covers two dates in August 2026 and gives "reasonable assurance" on that claim.³

An attestation looks at a moment, not a period. BDO's report on Tether says it covers only 30 June 2026, and gives no assurance about any other date.⁸

An audit goes wider. The auditor gives an opinion on whether a company's full financial statements for a period, such as a year, fairly present its financial position, results and cash flows.^10,11

Tether announced on 13 August 2026 that KPMG had given an unqualified ("clean") audit opinion on its 2025 financial statements. Tether called it its first ("inaugural") audit.¹¹ Reuters reported that the audit was not made public, so we have not seen KPMG's opinion ourselves.¹²

Some crypto firms publish "proof of reserves" reports instead. In 2023, staff at the US Public Company Accounting Oversight Board (PCAOB) warned that these reports are not audits and may not look at a firm's debts.¹³ They named stablecoin issuers among the firms using them.¹³