USDT and USDC logos

USDT vs USDC: Which stablecoin to use

19.07.2022 11:04
by Srđan Jovanović
11 min read

USDC and USDT difference

In this article, we will give an in-depth analysis of two of the leading tokens dominating the stablecoin market: Tether (USDT) and USD Coin (USDC). Understanding how these two work individually can be of great use when deciding which one is the best fit for your investment or trading needs. Read on to learn more about their similarities and differences!

What are stablecoins?

No matter how much faith we put in them as crypto enthusiasts, the inherent nature of cryptocurrencies is that they are prone to incredible price upswings and, more markedly, devastating price drops. These dramatic changes in value can (and often do) happen overnight. We’ve seen it happen with every major and minor coin over the years; price volatility and crypto simply go hand in hand. Every token you can think of, from Bitcoin to Dogecoin, bears the same kind of risk. This makes any kind of price prognosis difficult to pull off regardless of whether you’re an inexperienced investor or an advanced trader.

Stablecoins have emerged as a reliable option for investors to remain in the crypto ecosystem at a considerably lower risk in order to battle these volatile price oscillations. Pegged to a real-world asset, usually a fiat currency, stablecoins offer resilience to the fluctuations that other coins are subject to.

USDT and USDC have risen to the top of the stablecoin market since their launches, and they now appear on virtually every major cryptocurrency exchange.

What is USDT?

Currently the world’s no. 1 stablecoin by market capitalization, USD Tether is a digital currency that is pegged to the US dollar at a 1:1 ratio. Founded by Tether Limited in 2014, the idea behind USDT has been to keep its stable value standing around $1 no matter the state of crypto markets or other cryptocurrencies’ price movements.

This USD backed stablecoin operates on several different blockchain networks such as Ethereum, Algorand, EOS, Solana, Polygon, Tron, and others. Tether is able to connect to all these various blockchains to facilitate USDT issuance and redemption.

At the time of writing, USDT has a total market capitalization of over $67.5 billion.

USDT (Tether) background

Tether, formerly known as Realcoin, was founded in July 2014 by Brock Pierce, Craig Sellars, and Reeve Collins as a Santa Monica-based startup. Built on Mastercoin (Omni), a protocol layer for Bitcoin that introduced the stablecoin concept to the public in 2012, Tether was one of the first stablecoins to have ever been established.

Tether was developed to address two fundamental flaws with existing cryptocurrencies: excessive volatility and fiat to cryptocurrency convertibility. Tether was meant to address these perceived difficulties by creating a cryptocurrency that is completely backed 1:1 by bank deposits of US dollars.

USDT coins are represented as ERC-20 tokens on Ethereum, whereas Tether uses the Omni layer to represent USDT tokens on Bitcoin. While the token itself functions on a decentralized network, Tether Ltd, located in Hong Kong, is entirely responsible for the creation and redemption of tokens, as well as the 1:1 deposit backing.

How to buy USDT

We’ve already gone over all the available ways of purchasing USDT in a previous article, so here’s a brief recap.

In keeping with its immense popularity, Tether is offered by all major crypto exchanges such as Coinbase, Binance, Crypto.com and Kraken. Therefore, purchasing USDT is as easy as creating an account on any one of these exchanges and connecting your digital wallet.

After you’ve signed up for an account on the exchange of your choice, simply select USDT from the list of digital coins that are on offer and buy it using your credit or debit card. You can, of course, use other cryptocurrencies to buy Tether, if the exchange you’ve selected accepts the cryptocurrencies you own.

For security reasons, our recommendation would be to always opt for more prominent coin exchanges (such as the ones we listed above).

What is USDC?

USD Coin (USDC) is a fiat-collateralized stablecoin established by the Centre Consortium, which is a collaboration between Circle and Coinbase founded to develop price-stable crypto assets and blockchain protocols. USDC aims to deliver the advantages of trading with blockchain-based assets while limiting the risks associated with price volatility. Each USDC is created as an ERC-20 token and is fully collateralized by a matching US dollar note kept in accounts that are subject to regular public reporting of reserves.

The great thing about USDC is that its commercial issuers have to comply with licensing, regulatory, accounting, technological, and operational standards set by the Centre Consortium. Issuers must additionally back all tokens with fiat money reserves and provide monthly verification of the same to guarantee that USDC maintains a consistent one-to-one backing.

As of June 20, 2022, there are $55.9 billion USDC stablecoins in circulation, with an equivalent amount of USD (and USD denominated assets) kept in reserves.

USDC background

USD Coin was launched in October 2018 with the aim of addressing two fundamental flaws with existing cryptocurrencies: excessive price volatility and fiat-to-crypto conversions.

As opposed to Tether, the project was born out of the realization that the crypto market required a stablecoin that was fiat-collateralized with robust governance and transparency. The creators of USDC aim to make that happen by publishing statements regarding their 100% fiat token reserves on a monthly basis, as well as providing Centre Consortium members with explicit regulations and standards for USDC creation and redemption.

USD Coin has primarily been used by exchanges as a substitute for fiat currencies, circumventing the need to maintain bank connections. USDC is also one of the few fiat-collateralized stablecoins that can be used on decentralized finance platforms and DApps.

How to buy USDC?

USDC is as widespread on major crypto exchanges as Tether. However, Coinbase is the best place to acquire USDC. You can use Coinbase to purchase USDC or convert other cryptocurrencies into USDC if you already have an account on the platform. You can also transfer the tokens to any Ethereum wallet after the USDC has been credited to your account.

It’s simple to open a Coinbase account if you don’t already have one. After entering your email address and creating a password, you’ll need to supply personal identity information to Coinbase in order to comply with their KYC (Know Your Consumer) regulations.

USDT and USDC side by side

Transparency

USDT transparency

Historically, there has been quite a bit of reluctance on Tether’s part to provide detailed and regular updates on how the token is supported, which consequently led to a lot of contention surrounding the use of this token.

In fact, Tether sought to keep the composition of its reserves from becoming public, even going so far as to seek the New York Supreme Court to stop the state Attorney General from providing records to CoinDesk after the latter filed a Freedom of Information Law (FOIL) request. Since then, Tether has taken measures to become more transparent, including publishing the contents of its reserves and providing regular updates to its user base. However, several organizations, such as the Commodity Futures Trading Commission, are still pushing for a comprehensive audit of Tether.

USDC transparency

Centre Consortium, on the other hand, has always complied with current regulations, issuing audited reports on its reserves on a regular basis. True enough, the developers have made it a point for USDC to be as compliant as possible in order to be prepared for future government restrictions. An external accounting company conducts monthly audits of Circle’s reserves, and they also pledged to solely hold US dollars and short-term Treasury notes. They may also seek a national charter to establish their own digital bank.

Regulation

Over the past year or so, the stablecoin market has increased fivefold. Although this normally spells good news for the entirety of the crypto ecosystem, one of the more serious worries brought about by this surge in stablecoin investments is the panic that would occur if a large number of users tried to exchange their stablecoins for standard, i.e. fiat dollars, only to discover that there was inadequate liquidity which would pose tremendous risk to the financial system.

A report released in November 2021 by the Biden administration called for legislation to limit the issuance of stablecoins to insured depository institutions, allowing for serious regulation of stablecoins to address the systemic risk they may pose to the economy and financial system.

This shows that the government is taking steps to integrate stablecoins into the existing financial system, including audits and other regulatory measures to ensure transparency and user safety. Stablecoin issuers are consequently beginning to publish monthly audited reports of reserves to guarantee that their USD reserves are equivalent to the issuance of stablecoins at a continuous rate of 1:1.

USDT and USDC interest earning

Both USDC and USDT are popular options for earning on interest rates due to their low volatility status. Crypto lending platforms provide services comparable to those available through a bank account, and earning income by lending your tokens on a number of them is one approach to using your stablecoins. Indeed, you may even get a higher APY (annual percentage yield) by integrating stablecoins into your investment portfolio.

While interest rates fluctuate, you will almost always make more money by lending your USDT or USDC than by maintaining your dollars in a typical savings account. Furthermore, unlike with a traditional bank, you will have total choice over where you invest your money, without the accompanying high fees and frustrating intermediaries.

Trading volume and capitalization

The popularity of USDT is reflected in the stablecoin’s trading volume. At the time of writing, USDT’s trade volume stands at about $57 billion. Despite the ongoing rivalry with other stablecoins, USDT’s market capitalization is continuously expanding, with its current market value sitting at $67.5 billion.

USDC is not far behind. The stablecoin is in the top ten most valuable currencies in terms of market capitalization and rising. It currently stands at a value of $55.9 billion. However, at just about $5.6 billion, USDC’s 24-hour trade volume is still substantially lower than USDT’s.

Backing and safety

USDT backing

When it comes to its underlying fiat reserves, in its most recent transparency report, Tether claims to be backed by cash and cash equivalents (such as Treasury bills and money market funds), commercial paper, loans, corporate bonds, and other digital currencies. Based on the company’s terms of service, USDT holders are able to exchange and redeem their USDT coins for actual US dollars. Tether strives to maintain the token’s 1:1 backing by keeping the balance of fiat in its reserves at an equal or greater amount than the amount of USDT that are in circulation. According to the company’s transparency report, they currently have an asset excess of $162 million.

USDC backing

As regards USDC stability, Centre Consortium originally asserted that the token was backed by US deposits held in bank accounts. Recently, however, they’ve amended their statement to include reserves that are equivalently valued, such as highly liquid short-term investments that can be converted into cash. USDC supporters see this as a testament to the company’s pledge to concentrate the token’s backing on cash and cash equivalents which can support huge amounts of USDC redemptions in case the market gets hit by a dramatic crisis.

Side by side comparison table

Final verdict on USDC vs USDT

Choosing between these two leading stablecoins depends on a few factors. USDC is undoubtedly the way forward if you want to trade digital assets in huge volumes and utilize a highly compliant stablecoin backed by tons of regulation. However, USDT is likely to be your stablecoin of choice if you require high liquidity and widespread market acceptability.

However, while USDT is the most widely traded cryptocurrency, its parent company, Tether, has been hesitant to cooperate with audits and investigations in the past. Although investing in USDT might yield great profits, there has long been considerable doubt about the stability of Tether’s backing of the token.

USDC, on the other hand, has been meticulous in its preparations for any nascent government regulation of stablecoins. This means that users can comfortably buy and lend USD Coin for a solid profit, knowing that the company’s compliance and regular audits will protect them.

Ultimately, it is up to you to do your own research and determine what fits best for your digital wallet—as is the case with so many things in crypto.

Disclaimer: All information contained here should not, under any circumstances, be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.

Author

  • Long-time editor, crypto enthusiast, and all for free trade. Also a social scientist, musician, and a thorough-going liberal. Wrapped up a degree in linguistics, an MA in politics, and a PhD in history. Six postdocs afterwards. Speaks English, Serbian, Czech, and Swedish, communicative in German, Russian, Polish, Italian, Slovak, Norwegian, and even some Mandarin. Cryptocurrencies are the future.

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