Why USDC Looks Safer Than Other Stablecoins (For Now)

Recent statements from global regulators — including the Bank of England, which in its November 2025 consultation explicitly highlighted the attractiveness of un(der)-regulated Stablecoins for illicit purposes such as money laundering and terrorist financing, and the European Central Bank — have again underscored the serious money‑laundering, fraud, and illicit‑finance risks posed by certain stablecoins. In that context, it is worth examining which Stablecoins best mitigate those risks today.

Stablecoins are no longer a niche crypto product. They sit at the center of trading, payments, and cross‑border flows, which makes the question “which Stablecoin is actually safer?” more important than ever. Right now, USDC stands out as one of the safer options compared with many other Stablecoins in the market, precisely because of how it addresses the regulatory and operational vulnerabilities that authorities are now focused on.

At the same time, USDC is the only one Stablecoins that currently meet a high bar on both high‑quality reserves and open disclosure, and it does so at a scale of over US$70–75 billion in fully backed dollar reserves that few peers come close to matching (some may argue that a few newly U.S. government-registered Stablecoins also meet the open disclosure standard, but their actual reserves are tiny compared to USDC's). By contrast, while USDT remains the largest Stablecoin by market capitalization, USDT’s issuer reports over US$170 billion in reserves, yet the disclosure regime is still closer to ‘Trust me bro’ than to the bank‑style transparency increasingly expected by regulators and institutions.

1. Simple, high‑quality reserves

USDC is backed 1:1 by cash and very short‑dated U.S. government securities, held in segregated reserve accounts for the benefit of USDC holders. Circle holds 100% of USDC reserves in cash and short‑term U.S. Treasuries, with the majority in the Circle Reserve Fund (USDXX), an SEC‑registered 2a‑7 government money market fund that invests only in cash, short‑dated Treasuries, and overnight Treasury repos—among the most liquid and lowest‑risk assets

By contrast, some earlier or competing Stablecoins have relied on fundamentally weaker backing structures: mixes of commercial paper, longer‑dated or lower‑quality instruments, and other less transparent assets that raised questions about liquidity and credit risk under stress. More critically, a subset of so‑called algorithmic or under‑collateralised Stablecoins contain little to no fiat backing at all, instead using on‑chain protocols and market incentives to hold a peg. The collapse of TerraUSD (UST) in 2022, which wiped out tens of billions of dollars, is now a textbook example of the structural fragility of such designs. Regulators, including the Bank of England and other central banks, now explicitly flag under‑collateralised and purely algorithmic Stablecoins as systemically hazardous because they offer no robust redemption guarantee and no pool of high‑quality assets to fall back on.

2. Real transparency, on a legal schedule

One of the biggest structural risks in Stablecoins is “information opacity”: if users cannot see what is backing the token, rumors can trigger a run. USDC addresses this through a multi‑layered transparency framework: Circle publishes weekly reserve data, monthly third‑party assurance from a Big Four accounting firm, and detailed breakdowns of all assets, with reports confirming that reserves meet or exceed USDC in circulation.

Under the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), enacted in 2025, payment stablecoin issuers like Circle must disclose reserve amounts, composition, and outstanding tokens on a regular schedule, with independent audits reinforcing those disclosures. This means that transparency around USDC reserves is no longer just voluntary best practice—it is now embedded in law. In practical terms, markets have hard data to refer to when confidence is shaken, while many competitors still disclose less frequently, at lower granularity, or with weaker assurance, and algorithmic designs often have no meaningful collateral to report at all.

3. Clear regulatory alignment

USDC is issued by Circle (NYSE: CRCL), a U.S.-based NYSE-listed firm operating under money-transmission and AML/CTF regulations and positioned as a “Payment Stablecoin” inside the emerging U.S. regulatory perimeter. The GENIUS Act creates a dedicated regime for payment Stablecoin issuers, setting standards on reserves, liquidity, risk management and supervision, and USDC is widely cited in policy and legal commentary as the reference model for this category.

Circle is expected to obtain a federal license under an OCC‑aligned framework for Stablecoin issuers, reflecting its scale and the fact that it already operates with banking‑style risk and compliance standards. This does not mean USDC is exempt from regulation, it means regulators know who is responsible, where reserves sit, and which rules apply. By contrast, some other large Stablecoins still operate from offshore or lightly regulated jurisdictions, and algorithmic Stablecoins often sit in grey areas where accountability and prudential standards are unclear.

4. AML (Anti-Money Laundering) Controls: stronger, not perfect

No Stablecoin can honestly claim “zero money‑laundering risk”: once tokens move into self‑custody or offshore venues, they can be misused. In recent years, Stablecoins as a class have come to represent the majority of illicit crypto transaction volume, and empirical studies consistently show that USDT dominates flow on many high‑risk networks and venues.

However, there are meaningful differences in how issuers manage this risk. Circle performs full KYC/AML and sanctions screening at the issuance and redemption layer, responds to law‑enforcement requests, and can freeze blacklisted addresses when required, which has repeatedly happened in sanctions‑evasion and fraud cases. On‑chain and compliance analytics show that, relative to its overall legitimate usage, USDC accounts for a smaller share of illicit Stablecoins volume than some competitors, especially USDT. Sanctions‑related activity involving mainstream stablecoins has also declined as regulators and compliant issuers have stepped up coordination, further raising the cost and risk for offenders who choose more transparent tokens.

From a purely economic and practical standpoint, money launderers have no reason to use "highly risky," less opaque, and strongly supervised assets—definitely not those with the strongest KYC/AML controls and fastest response times to law enforcement. A rational money laundering offender who understands Stablecoins is more likely to avoid USDC precisely because its compliance perimeter, cooperation record, and traceability increase the probability that suspicious flows will be detected, frozen, and linked back to real‑world identities.

5. Reading enforcement stories carefully

A June 2025 U.S. Department of Justice civil forfeiture action involving a North Korean IT‑worker laundering network offers a good illustration of how enforcement narratives can blur important distinctions. Public descriptions note that roughly 7.7 million dollars’ worth of crypto—including USDT, USDC, ETH and other tokens—moved through wallets used to disguise the origin and ownership of funds.

While that description is technically accurate, it does not disclose how much of that total was in each asset. Subsequent blockchain‑intelligence analysis indicates that most of the illicit flows in that network were concentrated in USDT, with USDC representing a small fraction of the overall volume. When media or enforcement reports group multiple assets together in a single sentence, casual readers can easily conclude that each one played an equivalent role, even if the data shows otherwise. Asking “how big was each asset’s share?” is therefore essential when assessing what such cases really imply about any particular stablecoin.

6. Financial‑stability and run risk

Central banks, including the Bank of England, EU, and others, have highlighted the risk that a large Stablecoin could suffer a sudden loss of confidence, triggering a run that transmits stress into the financial system and, in some cases, into the markets for the assets that back it. That risk is real for any major Stablecoin, but the design details matter.

Short‑dated Treasuries and cash make USDC reserves easier to liquidate quickly if redemption demand spikes, reducing the chance that the issuer must sell illiquid or risky assets into a stressed market. Routine, detailed transparency also lowers the likelihood of surprise about reserve quality, which historical and experimental studies identify as a key trigger for runs in both banking and Stablecoin contexts. In recent periods of crypto‑market volatility, USDC has processed large outflows while maintaining full collateralization and operational continuity, which regulators and analysts increasingly view as a real‑world stress test of the model.

USDC is not magically exempt from run risk. But its combination of conservative reserves, robust disclosure, and a clear regulatory framework is much closer to what policymakers want to see if private dollar‑tokens are going to become part of critical financial infrastructure.

A balanced takeaway

For users, institutions, and policymakers, the right comparison is not “Stablecoins vs Perfection” but “this Stablecoin vs the alternatives available today.” In a world where dollar‑linked tokens already support trillions in annual transaction and settlement flows, relative safety matters. On that basis, USDC currently looks safer than many peers because:

• It uses a conservative, high‑quality reserve portfolio backed by cash and short‑term U.S. government securities rather than opaque collateral or purely algorithmic mechanisms.

• It discloses those reserves frequently, with legally mandated, independently assured reporting that reduces information opacity.

• It is being brought under a clear, bank‑style regulatory framework with a credible path to federal licensing and ongoing prudential supervision.

• It has demonstrably stronger AML controls and, according to on‑chain and compliance analytics, a smaller share of global illicit stablecoin volume than some other large tokens, especially USDT.

Any Stablecoin can, in theory, be misused for Money laundering. But in practice, offenders who understand how these systems work optimize for opacity and weak oversight, not for assets whose issuers are tightly supervised, highly transparent, and quick to cooperate with law enforcement. That does not make USDC risk‑free, yet in an environment where regulators are increasingly focused on under‑regulated, opaque, and algorithmic designs as vectors for illicit finance, “demonstrably safer than the alternatives” is already a meaningful achievement.

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