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

Recently, the UST crash event has caused a huge impact on the cryptocurrency industry, raising questions about the stability of stablecoins. The most critical issue is whether stablecoins have sufficient fiat currency and asset backing.

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

This article will focus on analyzing the terms of service of the two largest stablecoins, USDT and USDC, and the results may be surprising to many.

USDT stablecoin analysis

Article 3 of the USDT service terms states that if there is a liquidity shortage, unavailability, or loss of reserves, Tether has the right to delay the redemption or withdrawal of USDT and may even redeem USDT with securities and other assets from the reserves.

This obscure clause actually contains several key pieces of information:

1. USDT is not fully backed by fiat currency; the composition of reserves is determined by Tether.

2. Tether reserves the right of "physical redemption," allowing USDT to be redeemed with assets such as bonds and stocks instead of USD.

3. Only "verified Tether customers" can directly redeem stablecoins from Tether, which usually refers to institutions like exchanges, rather than ordinary users.

USDC stablecoin analysis

Surprisingly, the redemption terms for USDC are stricter than those for USDT:

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

2. Only Circle's partners ( "Class A users" ) can exchange USD at a 1:1 ratio, and individual users cannot directly exercise redemption rights.

3. Circle clearly states that it does not guarantee that 1 USDC will always equal 1 USD, nor is it responsible for 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 entirely linked to fiat currency but include various assets that may depreciate.

Currently, ordinary users have almost no rights to freely exchange these stablecoins through legal means. Although Tether allows individuals to become direct clients, it reserves the right not to redeem fiat currency. Circle, on the other hand, completely denies individuals the right to redeem.

There is a clear imbalance of rights between the issuer of the stablecoin and the users. Neither Tether nor Circle has provided a clear answer to the key question of whether ordinary holders can exchange for fiat currency at any time. This undoubtedly poses a risk to the long-term development of stablecoins.