Traders are well-aware of cryptocurrency’s fast-paced market movements. In fact, traders often consider digital currency’s volatility as more of a feature than a bug, using it to their advantage.
Still, volatility complicates things when trying to invest in crypto long-term or use it as an alternative store of value.
For these purposes, stablecoins rose to prominence. They’re incredibly useful for multiple purposes, including as a medium of exchange. They also come with many of the benefits that decentralized crypto possesses. USDC and USDT are the most popular stablecoins, but how do they compare? Learn about the differences between the two, and which one you should choose.
USDC vs. USDT: What are stablecoins?
Stablecoins are a type of cryptocurrency whose value is directly tied, or pegged, to the price of another asset. Most stablecoins are pegged to a fiat currency – both USDC and USDT are pegged to the US dollar. This means that one of these coins is worth $1.00 almost exactly. True to their name, stablecoins provide much-needed stability to an overall volatile crypto market.
Crypto and the volatility problem
Cryptocurrencies like Bitcoin can experience price fluctuations of over 10% in just a few hours – or sometimes minutes. Imagine agreeing to sell an asset for one Bitcoin – but it loses 5% of its value immediately afterward. Hence, traders can use stablecoins for more common transactions, as their value rarely fluctuates. Due to this, they also make great exchange alternatives, with steady exchange rates.
However, stablecoins still have many of the attractive crypto features they are looking for. While most are centralized, some stablecoins are managed on decentralized blockchains. They are exchanged just as quickly and securely as Bitcoin, without intermediaries. They’re also stored in virtual wallets, are exchanged for many types of assets, and keep the user’s privacy intact.
USDC vs. USDT: A history lesson
Centre Consortium, founded by crypto giants Circle and Coinbase, launched the USDC stablecoin in 2018. Circle Internet Financial, a US-based financial service company, manages USDC. However, the Centre acts as the official USDC regulator. Having a third party control the stablecoin is crucial to keeping transparency open for users.
USDT or USD Tether launched in late 2014 and runs on OmniLayer, a platform created on top of the Bitcoin blockchain. At the time of its launch, its name was Realcoin – however, it soon changed to USDT. It was the first stablecoin to successfully peg to the US dollar at a 1:1 ratio. Tether regulates the stablecoin and is in control of minting new USDT and circulating it.
USDC vs. USDT: Understanding the differences
USDC and USDT have several characteristics in common, as they’re both fiat-collateralized stablecoins pegged to the US dollar. They are both useful for routine payments and operate on multiple blockchains, making them more accessible. Both stablecoins transfer seamlessly and rapidly from peer to peer. However, the two stablecoins have some key differences which make the choice between them clearer.
- Market Cap: The market cap of an asset describes the total market value (or number of coins) that are minted and in circulation. It is affected by supply and demand and is a big indicator of that asset’s growth potential. At the time of writing, the USDC market cap $27 is billion, while the USDT’s market cap is $83.7 billion. The market cap between the two has always been significant. USDT has a much larger liquid trading volume available.
- Backing: Both of these stablecoins are backed by other assets, which is how their value remains consistent. USDC is backed by cash and cash equivalents, while USDT is backed by a mix of cash, treasuries, and liquid debt. These assets are reserves, which improve the liquidity of the stablecoins.
- Regulation: USDC is fully regulated, and not just by Centre. It follows the US regulations for anti-money laundering and know-your-customer purposes. It’s consistently under US regulatory scrutiny. USDT’s compliance with regulations is less clear.
USDT Advantages
- Longevity: USDT is the older and more established of the two stablecoins, so it has the upper hand in historical usage. It is more widely used due to its longer circulation as well.
- Trading volume and availability: Of the two, USDT has a much larger trading and liquidity volume available and is traded on multiple markets. It is supported on blockchain platforms like Ethereum, Solana, Algorand, Bitcoin Cash’s Standard Leger Protocol, and more.
- Liquidity: Due to its market cap, USDT also has a higher liquidity rate. High liquidity protects traders from huge swings in crypto prices.
- Market sentiments: Much of the cryptocurrency community has trust in Tether, having used it reliably for nearly a decade. You may encounter many traders who are more comfortable in receiving or giving you USDT in exchange for other assets.
USDC Advantages
Regulatory compliance and transparency
USDC makes clear that it complies with US regulations to protect customers and prevent financial crimes. USDT, on the other hand, has been involved in mild controversy. As recently as 2021, Tether and Bitfinex were involved in a legal battle with the New York Attorney General’s office. The Attorney General made allegations that the organization used funds for USDT reserves improperly.
The parties settled out of court and Tether admitted no wrongdoing, but its regulatory compliance was put into question.USDC also makes monthly testaments to its composition of reserves, while USDT makes quarterly reports. USDC’s monthly attestations are also checked by Grant Thornton LLP, the largest auditing firm in the US.
Less complicated reserves
USDC’s reserves are made entirely of cash and cash equivalents, while USDT’s reserves are mixed with a wider range of assets. Depending on your perspective, USDT’s reserves may cause more risk or have better diversification.
Redemptions
While both stablecoins offer redemptions for USD, USDC’s process is a bit simpler. USDT has a $100,000 cap and charges a $150 USDT verification fee. Users also have to redeem their USDT through a crypto exchange platform. USDC offers direct redemptions through Circle and has a $100 minimum exchange requirement. USDC redemptions are also conducted through simple bank wires.
Is USDC better than USDT?
So, do the advantages above make USDC a better option? The answer: it depends on what your goal is. USDC is largely considered
- more secure,
- well-regulated,
- and perhaps more liquid due to its cash reserves.
However, USDT has a larger trading volume, and its reserves may make it better for diversification purposes.
If you need a more accessible and widely-used stablecoin, then USD Tether is the better choice. On the other hand, you may want to invest in a more secure stablecoin with an easier redemption process. In this case, USDC by Circle Consortium is preferable.
What happens if USD collapses?
Since both stablecoins are pegged to the US dollar, it’s logical to assume their values will fall if USD collapses. Cash also backs both USDC and USDT, meaning its reserves and liquidity will also fall. You probably don’t need to worry about this scenario happening.
While both stablecoins have de-pegged from the US dollar (falling just under $1.00), it’s extremely unlikely that an entire fiat currency totally loses value.
What would happen to stablecoins if crypto surpassed USD instead? Some crypto experts predict this might happen due to crypto’s international status, including BlackRock chief Larry Fink. Crypto resides in a gray regulatory area for the US and other powerful countries, including South Korea, Australia, Germany, Japan, and more.
If crypto were to transcend their fiat currencies, they will need to establish new regulatory frameworks – like MiCA for example) Stablecoins may become even more popular, though their value remains unchanged.
USDC vs. USDT: Bottom line
As explained in this article, both USDC and USDT have advantages. Ultimately, choosing one over the other comes down to your personal beliefs, physical location, and involvement in the cryptocurrency market. As with any cryptocurrency, you should do your research and keep up with the latest news surrounding USDC or USDT to ensure both options are still strong and stable.
Currently, YouHodler has both USDT and USDC on its platform for you to try and see what works best for your investment strategy.
