In-depth Analysis of the Terms of Service for Stablecoins USDT and USDC

The recent UST crash has brought a huge impact to the cryptocurrency industry, raising questions about the stability of stablecoins. The most concerning issue is whether stablecoins have sufficient fiat currency and other assets as support.

Reserves are indeed a key indicator for measuring the value anchoring of stablecoins. However, if the legal terms of the stablecoin do not grant holders the legal right to convert on-chain assets into fiat currency, does this indicator still hold significance?

This article will focus on analyzing the terms of service of the two largest stablecoins by market capitalization, USDT and USDC, and the results may surprise many.

Tether stablecoin USDT

Article 3 of the terms of service for USDT states that if Tether's reserves experience liquidity shortages, unavailability, or losses, Tether reserves the right to delay or refuse the redemption of USDT, and may conduct physical redemptions using securities and other assets from the reserves.

This clause actually implies several issues:

1. If USDT is truly 100% backed by reserves, why is there still a need for delayed redemptions?

2. The "valuation" of USDT is pegged to the US dollar at a 1:1 ratio, but it is not entirely backed by fiat currency. The composition of the reserves is determined by Tether.

3. The Federal Reserve's assessment report indicates that Tether's backing assets may depreciate or lack liquidity under pressure, posing a risk of a run.

4. Tether reserves the right to redeem USDT with non-USD assets, the value of which is uncertain.

5. Only "verified Tether customers" can redeem USDT directly from Tether. Regular users need to go through intermediaries such as exchanges.

Circle stablecoin USDC

The redemption terms for USDC are stricter than those for USDT:

1. Circle does not commit to holding a legal currency reserve equal to USDC, but instead supports it with dollar-denominated assets of equivalent value.

2. Only Circle's institutional partners ( Class A users ) can exchange USD at a 1:1 rate. Individual users cannot directly exchange with Circle.

3. Circle clearly states that it does not guarantee that 1 USDC will always equal 1 USD, nor is it responsible for any losses caused by fluctuations in the value of USDC.

Summary

From a legal perspective, USDT and USDC are not equivalent to fiat currency. The reserves they claim are not fully pegged to fiat currency, but rather include various assets that may depreciate.

Currently, it is difficult for individual users to assert their rights to freely exchange stablecoins through legal means. Although Tether allows individuals to become direct clients, it retains the right not to redeem fiat currency. Circle, on the other hand, does not acknowledge the rights of individuals to redeem directly.

There is a clear imbalance of rights between the stablecoin issuers and users. Tether and Circle have not provided a definitive answer on whether individual users can exchange fiat currency at any time. This uncertainty undoubtedly increases the potential risks for stablecoin holders.