Economists Stephen Cecchetti and Kim Schoenholtz liken today’s stablecoin battle to Henry VIII’s copper‑coated pennies. Tether’s USDT and Circle’s USDC both promise a dollar peg, yet their backing diverges sharply. Circle stores over 85% of USDC in a BlackRock‑run money‑market fund and files weekly reports, while Tether’s reserves mix cash, Treasuries, gold, bitcoin and loans, and it has never undergone a Big‑Four audit.

By end‑2022 USDT held $66 bn versus USDC’s $44 bn; in 2025 the gap widened to $187 bn versus $75 bn, a swing of more than $100 bn. Chainalysis estimates illicit blockchain inflows hit $154 bn in 2025, with stablecoins accounting for the bulk and USDT supplying the lion’s share. Users seeking anonymity gravitate toward the less‑regulated token.

U.S. rules such as the Bank Secrecy Act and the 2025 GENIUS Act bind issuers and custodians but cannot police tokens once they move to self‑hosted wallets, where addresses lack names. Tether froze roughly $3.3 bn of USDT between 2023‑25, far more than Circle’s $109 m of USDC, reflecting where illicit flows concentrate. The episode shows that without token‑level oversight, “bad” stablecoins will dominate transactions that evade detection.