Institutional voices are raising a fundamental question about the two largest stablecoins in the world: are Tether (USDT) and Circle's USD Coin (USDC) actually functioning as stable, cash-like assets, or have they become something else entirely? At the Digital Money Summit 2026 in London, Christoph Hock of Union Investment argued that neither token deserves the label of an authentic stablecoin, despite their combined dominance of nearly 90% of global stablecoin circulation.

What Makes a Stablecoin "Stable" Enough for Institutions?

The debate centers on a critical distinction: the difference between a token that holds a price and a token that functions like actual cash. Stablecoins are supposed to be the calm center of digital markets, where traders park funds, companies settle transactions, and institutions manage on-chain cash. However, Hock's critique cuts deeper than market size or trading volume. He focused on what actually backs these tokens and whether that backing can withstand real-world stress.

Hock's central complaint about Tether focused on the composition of its reserves. According to the Q4 2025 attestation, Tether's backing includes approximately 77% cash and short-dated US Treasury bills, but also roughly 5% Bitcoin, 4% gold, and 2% secured loans. By January 2026, Tether's gold reserves had reached approximately 148 tonnes, valued at around $23 billion. While Tether was the seventh-largest buyer of United States Treasury securities in 2024, with $33.1 billion in net purchases during the year, critics argue that holding volatile assets like Bitcoin and gold alongside government securities makes the token look less like digital cash and more like a mixed investment vehicle.

"When looking at the invested assets of Tether, they have massive holdings in gold, they have massive holdings in bitcoin," stated Christoph Hock.

Christoph Hock, Head of Tokenization and Digital Assets at Union Investment

The concern is not merely academic. In moments of market stress, Bitcoin and gold may be valuable, but they do not behave like cash. If a large number of users suddenly want to redeem their stablecoins for actual dollars, assets that require time to sell become a liability. Treasury bills can be sold quickly, but even those take time to convert to immediate cash. For institutional treasury teams, that distinction matters enormously.

Has USDC Proven More Reliable Than Tether?

Circle's USDC is often positioned as the more conservative alternative to Tether, but it has faced its own serious challenges. After the failure of a cryptocurrency-focused banking institution in early 2023, USDC fell to $0.87, a significant break from its one-dollar peg. Then came another jolt. In March 2024, USDC dropped to $0.74 on three distinct occasions. For a product marketed around one-to-one stability with the dollar, these episodes represent serious failures of the core promise.

These peg breaks give critics concrete evidence for stricter stablecoin regulation. The issue is not just whether reserves exist on paper. It is whether a token can hold its peg when confidence cracks and redemption pressure spikes. For institutional market participants managing treasury operations, a double-digit drawdown in something meant to function as operational cash is not a routine trading event. It changes collateral decisions, settlement planning, and risk assumptions.

How Are Regulators Responding to These Concerns?

The regulatory response is accelerating on both sides of the Atlantic. The United Kingdom formally brought stablecoins under financial regulation for the first time when Parliament signed the Financial Services and Markets Act 2000 (Cryptoassets) Regulations into law on February 4, 2026. Full enforcement of the UK regime begins on October 25, 2027, giving firms time to secure Financial Conduct Authority (FCA) authorization.

In the European Union, the Markets in Crypto-Assets regulation (MiCA) went fully live for stablecoins in mid-2024. Tether has publicly stated it does not plan to pursue a MiCA authorization, preferring to focus on non-EU markets and to launch the MiCA-compliant stablecoin USDT0 through partners. Circle, by contrast, has already secured licensing in France for both EURC and USDC under MiCA, positioning itself for broader European expansion.

In the United States, the Federal Reserve and Treasury implementation of the stablecoin framework in late 2025 created two compliant categories: federally licensed issuers and state-qualified issuers. Foreign issuers can serve US users only via a registered intermediary or a US-domiciled entity. Tether launched a US-regulated entity (USAT, via Anchorage) to meet this bar.

What Regulatory Standards Are Institutions Pushing For?

The push from American and European regulators is increasingly clear in direction, even if exact policy design is still being finalized. Both the European Central Bank and the Federal Reserve have identified vulnerabilities in stablecoins and are advocating for banking-equivalent supervision of stablecoin issuers. The concern extends beyond protecting investors. It focuses on what happens when large pools of money sit in private digital-dollar systems that do not face the same safeguards as banks or money market funds.

Conventional money market funds have mechanisms such as liquidity charges and withdrawal restrictions that protect the system during stress. Stablecoin issuers, according to regulatory analysis, generally do not operate with comparable safeguards in most jurisdictions. This gap helps explain the regulatory shift. If stablecoins want to function like money, regulators appear increasingly interested in supervising them more like money institutions.

Steps Regulators Are Taking to Strengthen Stablecoin Oversight

• Reserve Requirements: Mandating that stablecoin issuers maintain specific minimum levels of high-quality liquid assets, such as government securities and cash equivalents, rather than volatile assets like Bitcoin or gold.
• Audit Protocols: Requiring regular, independent audits of stablecoin reserves to verify that outstanding token supply is fully backed by claimed assets, with results published transparently to the public.
• Redemption Mechanisms: Establishing clear, enforceable processes that guarantee token holders can redeem stablecoins for actual dollars at face value, even during periods of market stress or high redemption demand.
• Liquidity Safeguards: Implementing protections comparable to those used in traditional money market funds, such as liquidity charges or temporary withdrawal limits during extreme market conditions.

Why Does Stablecoin Dominance Create Systemic Risk?

The concentration of stablecoin supply matters because it creates a single point of failure. Tether and USDC together represent nearly 90% of global stablecoin circulation. As of April 2026, outstanding USDT sits near $190 billion, up from roughly $118 billion at the start of 2025. This scale means that when doubts surface around reserve quality or redemption resilience at the top of the market, the question is no longer about a niche crypto product. It becomes a broader issue of stablecoin systemic risk.

A market dominated by two private issuers leaves little room for failure. If either token wobbles under stress, the impact can move quickly through exchanges, trading firms, corporate treasury operations, and other parts of crypto that rely on fast digital dollars. The Federal Reserve has also pointed to another risk: if consumers shift savings out of bank deposits and into stablecoins, banks lose an important funding base. That means the rise of digital-dollar tokens is no longer just a crypto adoption story. It becomes a question about how money moves through the wider financial system.

Where Are USDT and USDC Actually Used Today?

Despite regulatory scrutiny, both stablecoins remain deeply embedded in global financial flows. USDT is now live on more than 15 blockchain networks, with approximately 45% of USDT supply on Tron, the dominant chain for payments and remittances, especially across Southeast Asia and Latin America. Ethereum hosts approximately 40% of USDT supply, serving as the dominant chain for institutional settlement, decentralized finance (DeFi) collateral, and centralized exchange reserves.

Remittance corridors in the Philippines, Mexico, Nigeria, and Argentina have shifted steadily toward USDT over the past three years. Users avoid Western Union fees, skip bank foreign exchange spreads, and receive funds in minutes rather than days. Institutional settlement has also accelerated. Hedge funds, market makers, and commodity traders have migrated settlement flows on-chain because USDT finality beats bank wires for both speed and weekend availability. Corporate treasuries hold USDT for 24/7 settlement, vendor payouts, and cross-entity sweeps.

The practical reality is that USDT remains the most common quote currency on centralized exchanges. Traders hold USDT between trades, and market makers use it as base inventory across Binance, OKX, Bybit, and others. Liquidity is deepest in USDT pairs, which is the practical reason USDT still dominates despite regulatory scrutiny.

The tension facing the stablecoin industry is now unavoidable. The more useful stablecoins become, the harder it is for regulators to ignore them. And the more they are treated as core financial infrastructure, the more pressure there will be to hold them to bank-like standards. Tether reserves, USDC volatility, and warnings about stablecoin systemic risk are no longer fringe talking points. They are becoming the framework through which major institutions and regulators judge the next phase of digital-dollar growth.