What Is a Stablecoin? USDT and USDC Explained for Kenyans

A stablecoinStablecoinA crypto token designed to stay at a fixed value, usually 1 US dollar. USDT and USDC are the best known. Glossary is a crypto token built to hold a fixed value — almost always one US dollar. Bitcoin can swing 10% in a day; a stablecoin is supposed to sit at US$1.00 while the rest of the market jumps around. In Kenya, the stablecoin that matters most is USDTUSDT (Tether)The most traded US-dollar stablecoin. On Kenyan P2P markets it is the main coin swapped for KES. Glossary (Tether): it is the coin most P2PP2P tradingPeer-to-peer: you buy crypto directly from another person and pay them via M-Pesa or bank; the platform only holds the coins in escrow. Glossary traders swap for M-Pesa, the coin freelancers get paid in and the coin many people use to hold dollar value on a phone.

The key word is “built to”. A stablecoin only stays stable if the company or mechanism behind it does its job. This page explains how that works, when it has broken, and what that means for your shillings.

How a stablecoin keeps its dollar value

The simplest version works like a cloakroom ticket. You hand the issuer one dollar; it gives you one token and keeps the dollar in reserve. Later, anyone with a token can hand it back and collect the dollar. As long as that promise is credible, the token trades very close to US$1 — if it dipped to 98 cents, traders would buy it cheaply and redeem it for a full dollar, pushing the price back up.

In practice, only large, verified customers redeem directly with Tether or Circle. Everyone else — including Kenyans on P2P — trades with other people, and the price stays near a dollar because those large players keep it there. The peg is only as good as the reserves and the redemption promise behind it.

Three kinds of stablecoins

Not all stablecoins are built the same way, and the differences decide how they fail.

Fiat-backed coins dominate (fiatFiat moneyGovernment-issued money such as the Kenya shilling (KES) or the US dollar. Glossary simply means government money such as the dollar). The issuer holds reserves in the traditional financial system and publishes reports on them.

Crypto-backed coins such as DAI are created by locking up more crypto than the stablecoins issued — for example, US$150 of ether to borrow US$100 of DAI. If the collateral falls too far, it is sold automatically to protect the peg.

Algorithmic coins tried to hold the peg with no real reserve at all, using a second token to absorb swings. That design is now mostly a cautionary tale.

What happened to TerraUSD

TerraUSD (UST) was one of the largest stablecoins in early 2022. It had no dollar reserve: each UST could be swapped for one dollar’s worth of a sister token, LUNA, which was created on demand. That works while people believe in LUNA. When they stopped, it did not.

• Early May 2022Large UST salesBig holders sell UST and it slips below US$1.
• 8–12 May 2022The death spiralHolders swap UST for newly created LUNA and sell it; LUNA's supply explodes and its price collapses, which makes UST even less credible.
• 13 May 2022UST near zeroUST trades around one US cent. Together, UST and LUNA lost roughly US$40 billion in market value.
• AftermathContagionThe crash helped trigger failures at crypto lenders and pushed Bitcoin sharply lower through 2022.

The lesson for Kenyans: a coin calling itself “stable” tells you nothing. Ask what backs it, and whether you could get a dollar out if everyone tried at once.

USDT vs USDC: what is the difference?

Both are fiat-backed dollar stablecoins, and both run on several blockchains. The differences are in who issues them, how much they disclose and how easy they are to use in Kenya.

In plain terms: USDT is the coin you can actually sell for M-Pesa at 10pm on a Sunday. USDC is the coin with more detailed public reporting. Neither is a Kenyan bank deposit, and neither is protected by the Kenya Deposit Insurance Corporation. More detail on each coin in our USDT guide and USDC guide.

Is USDT safe? Reserves, attestations and the S&P rating

Tether says every USDT is backed by reserves, and publishes quarterly reports prepared by the accounting firm BDO. Those reports are attestations — a cousin of the proof of reservesProof of reservesA report in which an exchange shows it holds customer assets 1:1. Useful, but it does not prove the exchange has no hidden debts. Glossary that exchanges publish: a snapshot confirming that the listed assets existed on a given date. They are not a full audit of the company’s books and controls — a point critics have raised for years.

In November 2025, S&P Global Ratings lowered its USDT stability assessment from “4 (constrained)” to “5 (weak)”, the bottom of its scale. S&P pointed to a rising share of higher-risk assets in the reserves — Bitcoin, gold, secured loans and corporate bonds, about 24% of reserves at 30 September 2025 — and gaps in disclosure. Tether rejected the assessment and reported US$181.2 billion in assets backing US$174.4 billion of USDT at that date. S&P also noted that USDT had kept a notable level of price stability.

Circle discloses more. According to its 2025 SEC filing, most USDC reserves sit in the Circle Reserve Fund, an SEC-registered government money market fund managed by BlackRock and held in custody at BNY Mellon, with the rest mostly in bank cash. A big accounting firm provides monthly assurance on the reserves.

When stablecoins lose the peg: USDC and Silicon Valley Bank

Reserve-backed stablecoins have wobbled too. On 10 March 2023, US regulators shut Silicon Valley Bank. Circle then confirmed that about US$3.3 billion of USDC reserves — roughly 8% — was held there. Holders rushed to sell, and USDC fell to around US$0.88 on some exchanges over the weekend. When US authorities announced that SVB depositors would be made whole, USDC climbed back to one dollar by Monday 13 March.

Two lessons follow. First, a fiat-backed stablecoin is only as safe as the banks and assets holding its reserves. Second, panic sellers lock in losses; people who waited lost nothing. If you hold stablecoins as savings, spreading them across more than one issuer is a reasonable precaution.

Why Kenyans use stablecoins

For a Kenyan, a stablecoin solves problems the shilling and M-Pesa do not.

Holding dollar value. When the shilling weakens, prices of imported goods, school fees abroad and fuel climb. The shilling hit a record low of about KSh 160 to the US dollar in mid-January 2024 (CBK data reported by Business Daily), then recovered to around KSh 129 later that year. Someone who held dollars through 2023 protected their purchasing power; someone who converted to dollars at KSh 160 lost shillings when the currency recovered. Stablecoins expose you to the dollar — which can help or hurt — not to a guaranteed gain.

Getting paid from abroad. Freelancers and remote workers often receive USDT because it arrives in minutes and can be sold on P2P for M-Pesa. See receiving USDT payments in Kenya and our USDT to KES converter.

Moving money across borders. Some families and small importers send stablecoins instead of using a bank wire. The real cost is the spread at both ends, which our P2P guide helps you measure.

The risks nobody mentions on P2P

Issuer freezes. Tether and Circle can blacklist addresses so their tokens cannot move. Tether froze about US$1.26 billion of USDT across roughly 4,000 addresses during 2025, according to blockchain-security firm BlockSec, typically in cooperation with law enforcement after hacks, scams or sanctions cases. You are unlikely to be targeted directly, but if a P2P counterparty pays you with stolen coins, your address or exchange account can be dragged into an investigation.

Network mistakes. USDT exists on several networks. Sending TRC20TRC20The token standard on the TRON blockchain. USDT-TRC20 is popular in Kenya because transfers are cheap and fast, but you need a little TRX for fees. Glossary USDT to an address on another network, or forgetting a required memo, can lose the funds. Our TRON and TRC20 guide explains the common setups.

Platform risk. Coins on an exchange are the exchange’s promise to you. If the account is frozen or the platform fails, the peg does not help you. For larger amounts, a non-custodial walletNon-custodial walletOnly you hold the keys, for example Trust Wallet or MetaMask. Nobody can freeze it — and nobody can recover it if you lose the seed phrase. Glossary removes that layer.

Regulation. Under Kenya’s VASP Act 2025, stablecoin issuers fall under the Central Bank of Kenya. Neither Tether nor Circle appears on any public Kenyan licence list we could find, and rules could still change how local platforms handle stablecoins. Follow our regulation guide.

• Use USDT for what it is good at: moving between M-Pesa, exchanges and payments.
• Do not keep money you need for rent or fees in a single exchange account.
• Always match the network (TRC20 to TRC20, BEP20 to BEP20) and send a small test first.
• Ignore anyone promising fixed daily returns on USDT — that is a Ponzi pattern.
• Keep your M-Pesa and order records; KRA's rules on crypto still apply.

Where to go next

If stablecoins are your entry point, read the practical USDT coin guide next, then what is cryptocurrency for how stablecoins fit alongside Bitcoin and other coins. When you are ready to buy, the P2P guide shows how to do it safely with M-Pesa.