Stablecoins

October 2026

If you ask someone what one USDC is worth, they'll say a dollar. That's the whole idea of a stablecoin. But if you've ever turned USDC back into dollars, you'll have noticed you never get exactly a dollar. There's a fee, or a spread, or a quote that's slightly off. The reason is that almost no one who holds USDC can actually get a dollar for it.

There are two markets for USDC. In the primary market you deal with Circle directly. You send Circle a dollar and it mints you one USDC, or you send back one USDC and it wires you a dollar. That's the only place where one USDC is guaranteed to be worth one dollar. Everywhere else it's just a price.

The primary market is hard to get into. You need a Circle Mint account, and to get one you have to pass Circle's business verification as a bank, an exchange, a fintech, or something like that. Individuals can't, and neither can most small companies. It's built for people moving millions. Even they don't get dollars entirely for free. Since March 2026, Circle only redeems the first $40M a day without a fee. After that it charges 2 basis points up to $100M, and 5 above that.

So everyone else gets USDC from someone who already has it. You buy it on an exchange, where USDC/USD is just another trading pair. You swap for it in a pool on Solana. You buy it from a ramp provider, who got it somewhere else. Each of these is a market, and in a market the price is whatever the last buyer and seller agreed on. It moves with supply and demand, with how deep the market is, and with how badly someone needs to get out right now. And you pay to get there: trading fees, spreads, slippage, network fees, currency conversion if you don't start in dollars, and whatever margin the ramp takes.

Why then is the price always so close to a dollar? Arbitrage. The people who do have access to the primary market keep the secondary price honest. If USDC is trading at $0.995 on an exchange, they buy it and redeem it with Circle for $1.00. If it's trading at $1.005, they mint it from Circle for $1.00 and sell it. Either way the price gets pushed back toward a dollar.

But only so far. Arbitrageurs stop when the profit is smaller than the cost of the trade. So the peg isn't really a point. It's a band around a dollar, about as wide as it costs to arbitrage. To see how wide that is, you have to know what Circle does with the dollars.

Where the dollars go

When you give Circle a dollar it doesn't put it in a vault. Most of it goes into the Circle Reserve Fund, a government money market fund managed by BlackRock and held at BNY Mellon. The fund owns short-dated Treasury bills and overnight repo backed by Treasuries. The rest sits as cash in bank accounts, so redemptions can be paid quickly. The reserves are kept separate from Circle's own money and can't be lent out.

Treasuries pay interest, and none of it goes to you. If you hold USDC you earn nothing. The interest goes to Circle, which shares it with whoever brings in USDC holders. The biggest of these by far is Coinbase, which keeps all the interest on USDC held on Coinbase, plus about half of what's left on USDC everywhere else. In Q2 2026, Circle's reserves earned about $701M, and about $410M of that went straight back out as distribution costs, most of it to Coinbase. [1]

So a USDC isn't even quite the same as a dollar in a money market fund. It's a dollar that earns interest for everyone except the person holding it.

All fiat-backed stablecoins work this way. Dollars come in, they're held as Treasuries and cash somewhere, and someone decides who keeps the interest. Where they differ is mostly that last decision. Here are four of them:

OUSD is the interesting one. It launched in September 2026, and it was designed to give the economics away instead of keeping them. It has over 200 members, the interest goes to the partners who distribute it, and those partners can earn equity in Open Standard too. Every integration can mint and redeem at 1:1 for free. That means a lot more companies have direct access to the primary market, and one of the costs of arbitrage, the redemption fee, is gone. The catch is that it's new. Its reserves page is a live dashboard, and the monthly independent attestations haven't started yet.

Now we can see what goes into the width of the band. A market maker quoting USDC near a dollar has to price in every way the trade could cost them.

• Redemption fees. Someone buying USDC at $0.9997 to redeem it at scale has to clear Circle's 2 to 5 basis points before they make anything.
• Time. Redemptions are paid by wire, and wires only move when banks are open. If you buy USDC on a Friday night, your dollars are stuck until Monday.
• Carry. Money that's in transit, or sitting around as USDC inventory, earns nothing, because the interest goes to Circle and Coinbase. With Treasuries at around 3.5%, holding $100M of USDC instead of T-bills costs about one basis point a day. [2] Over a weekend that's three, which is more than most of the moves they're arbitraging.
• Bank risk. Part of the reserves is cash in commercial banks. If one of those banks gets into trouble, so does the promise that a USDC can be redeemed for a dollar.
• Scattered inventory. USDC sits on exchanges, on different chains, and with ramp providers. Moving it to where it's needed costs fees, takes time, and leaves you exposed to whoever is holding it in the meantime.

Add these up and you get the spread. When everything is calm it's tiny, because none of these things is likely to happen. When one of them does, it blows out.

That's what happened in March 2023. Silicon Valley Bank failed with about $3.3B of USDC's reserves in it. It failed over a weekend, so the banks were closed and redemptions couldn't settle. Arbitrageurs couldn't close the loop, and on secondary markets USDC fell to around 87 cents. The reserves turned out to be mostly fine, and USDC recovered once it was clear Circle would get its money back. But for a few days the price showed what it had been all along: the market's guess about whether the primary market would keep its promise.

So what is one USDC worth? A dollar, if you're a Circle customer and the banks are open. For everyone else it's a price in a secondary market, held close to a dollar by the people who can reach the primary one. Most of the time that's close enough not to matter. But it's never exactly one.

Notes

[1] These figures are from Circle's Q2 2026 results. Distribution costs also include payments to partners other than Coinbase, and some transaction costs.

[2] 3.5% a year divided by 365 days is about 0.96 basis points a day.