Exploring the Terms of Service of USDT and USDC: An Analysis of Stablecoin Holders' Rights

The recent UST crash has brought a huge shock to the cryptocurrency industry, raising questions about the stability of stablecoins. The most concerning issue is whether stablecoins have enough fiat currency and other assets to back them.

Reserves are indeed an important indicator of 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, the significance of this indicator is questionable.

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

USDT stablecoin analysis

The third clause of the USDT service terms stipulates that in the event of liquidity shortages, unavailability, or loss issues with the reserve, a certain trading platform may delay the redemption or withdrawal of USDT and reserves the right to redeem it through physical assets. These physical assets include securities and other assets held in the reserves.

This clause implies that although USDT claims to be pegged to the US dollar at a 1:1 ratio, it is not entirely backed by fiat currency. The composition of the reserves is determined by the platform.

The assessment report from the Federal Reserve Board points out that the supporting assets of USDT may depreciate or lack liquidity under pressure, leading to a risk of a run, and the lack of transparency may exacerbate these risks.

It is worth noting that only "verified customers" are eligible to directly initiate stablecoin redemptions with the platform. General users typically exchange stablecoins through institutions such as exchanges, rather than trading directly with the platform.

USDC Stablecoin Analysis

The terms of service for USDC also contain some points worth noting. The platform does not promise to hold a reserve of fiat currency equivalent to the amount of USDC, but instead supports its stablecoin with dollar-denominated assets of an equivalent amount.

Although the platform promises to exchange 1 USDC for 1 USD, this rule only applies to its partners, such as exchanges and financial institutions. Individual users cannot become "direct users" of the platform and exercise the right of redemption.

It is worth noting that the platform does not guarantee that the value of 1 USDC will always equal 1 USD, as they cannot control how third parties quote or trade USDC. The platform also states that it is not responsible for any potential losses or other issues arising from fluctuations in the value of USDC.

Summary: Unequal Rights

From a legal perspective, USDT and USDC are not equivalent to fiat currency. Their claimed 1:1 value reserves are not entirely tied to fiat currency, but rather include various potentially depreciating assets.

Currently, users may not have the right to freely exchange stablecoins through legal means. For USDT, while individuals can become direct clients, the platform reserves the right not to redeem fiat currency. For USDC, although the platform legally commits to allowing the redemption of fiat currency, it does not recognize individuals' rights to exercise that commitment.

The rights of issuers of stablecoins and users are clearly unequal. Neither of these platforms has provided a clear answer on whether individuals holding stablecoins can exchange them back to fiat currency at any time. This situation highlights the importance of regulation in the stablecoin market and the protection of user rights.