USDC vs USDT: Which is best for your business? [Detailed 2024 comparison] | BVNK Blog (2024)

In this guide

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Introduction

Stablecoins are growing in popularity as an alternative method of making business payments and settlements. In this article, we will look at the two largest stablecoins—Tether (USDT) and USD Coin (USDC). We will explore their key features and differences; delve into their histories to understand their reliability; and provide a verdict on which stablecoin is the best for your business in 2023.

But first, a quick reminder on the basics of stablecoins.

What are stablecoins?

A stablecoin is a cryptocurrency that is designed to minimise price volatility. It does this by pegging its price to a more stable asset, typically a fiat currency or a ‘hard’ commodity such as gold. To keep the price of their coins stable, operators will maintain physical stocks of the underlying asset, or employ algorithms that adjust to fluctuations in demand and supply.

Just like other cryptocurrencies, stablecoins run on blockchains that operate 24/7, and so can be traded and exchanged around the clock with almost immediate settlement. This makes stablecoins a popular alternative for settling payments. This is especially true for cross-border transactions, where traditional infrastructure can be disconnected, making payments and settlements complex, slow and costly. Today, many businesses are exploring stablecoins as part of their payment and settlement currency mix, including SAP, Facebook and Visa.

Today, stablecoins account for around 10% of the entire cryptocurrency market, measured by market cap. While the 2022 cryptocurrency crash saw the stablecoin market contract, today overall market capitalisation and trading volumes are almost back at their 2022 peak, while 75% of digital asset owners reportedly now hold stablecoins.

Of the total payments BVNK collected through our Global Settlement Network in the last 12 months (June 2022-June 2023), almost 60% were stablecoins. Around 15% of payments were also settled in stablecoins. For the remainder, stablecoins were used as an intermediary to move fiat funds, mainly euros, pounds and dollars. Stablecoins also make up the vast majority (90%) of consumer cryptocurrency payments processed by BVNK.

In this article, we will look at the two largest stablecoins, measured by market cap. These are Tether (USDT) and USD Coin (USDC). Both are managed by private organisations; Tether is issued by Tether Limited, while USD Coin is issued by Centre, a consortium founded by Circle. We will explore the different types of stablecoins and how they work later in this article.

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USDC vs USDT: Key features

The two largest stablecoins are Tether (USDT) and USD Coin (USDC). Their combined market cap accounts for 86% of the entire stablecoin market. Tether is the largest ($83.7 trillion and 65% of the market), and USD Coin is the second ($26.9 trillion and 21%).

Tether and USD Coin are both ‘fiat-collateralised’ stablecoins (also known as off-chain stablecoins). This means that they are backed by reserves of traditional fiat currencies, in both cases the US dollar. Issuers of ‘fiat-collateralised’ stablecoins match the stablecoin supply by an equivalent amount of fiat currency. This 1:1 supply ratio ensures the value of the stablecoin is pegged to the underlying fiat currency. (To learn more about other types of stablecoins, read our 11 Best Stablecoin Picks for B2B Payments in 2023 guide.)

Let’s look in more detail at each coin. (Unless otherwise stated, all data in this section was sourced from coingecko.com between 3-5 July 2023.)

Tether (USDT)

USD Coin (USDC)

Launched: Sept 2018
Type: Fiat-collateralised
Pegged currency/asset: US dollar
Market cap / rank: $27.7bn / 2
30 day average trading volume: $3.5bn
Primary blockchains: Ethereum, Algorand, Solana and Stellar
Exchanges present on: 406
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About: USD Coin is managed by a consortium called Center, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain. Circle claims that each USDC is backed by a dollar held in reserve, or by other "approved investments", though these are not detailed. In June 2021 the wording on the Circle website changed from the previous "backed by US dollars" to "backed by fully reserved assets". USD Coin reserves are regularly attested but not audited, and the monthly attestations can be found on the Centre Consortium's website.

How stable are Tether and USD Coin

Tether and USD Coin have been proven to hold their value at parity with the US dollar. And as we read in the introduction and other articles in this series, they are becoming established financial instruments, illustrated by daily trading volumes and popularity with big business and governments.

However, there have been moments when their peg has been broken.

In October 2018, Tether dropped to as low as $0.92 amid rumours of insufficient backing for USDT and withdrawal issues on the Bitfinex cryptocurrency exchange. It lost dollar parity again for a few days in May 2022, falling as low as $0.9959. A month later it had slipped again to $0.9975. In March 2023, USD Coin lost its dollar peg, dropping to as low as 87 cents, as a result of $3.3 billion of reserves held at the failed Silicon Valley Bank (SVB). When the bank collapsed, USD Coin holders quickly redeemed over $1 billion of USDC for dollars, causing the dramatic price slippage.

While these drops don’t seem large, they can have profound impacts for businesses that are using them to settle payments or that hold a large volume of them on their balance sheet.

But Tether and USD Coin have regularly demonstrated their resilience. In all the above examples, the peg was restored within a few days.

Additionally, Tether has received ongoing criticism and regulatory fines for a lack of transparency of its reserves. Regulators and critics argue that Tether Limited has not provided sufficient evidence to prove the existence of adequate reserves to support the issuance of Tether tokens. In early 2021 Tether was fined $18.5 million for damages to the state of New York and ordered to submit to periodic reporting of their reserves. Later that year the US Commodity Futures Trading Commission ordered Tether to pay a penalty of $41 million for making “untrue or misleading statements” in connection with its dollar reserves.

​​In comparison, USD Coin has maintained a less controversial profile. One notable exception came in May 2021, when concerns were raised about the level of transparency and the nature of the audits conducted on USDC's reserves. The Centre Consortium, which oversees USDC, had previously claimed to conduct monthly audits to verify its reserves, but these were discovered to be no more than attestation reports. This raised questions of transparency and trust.

USDC vs USDT: How do they measure up?

Tether and USD Coin should both be considered safe stablecoins for businesses to adopt as payment and settlement methods. They have been proven over many years; Tether since July 2014 and USD Coin since September 2018. Both offer deep pools of liquidity; Tether has a 30-day average trading volume of $19.2bn, and USD Coin if $3.5bn. Despite some controversies regarding proof of dollar reserves, both stablecoins have made important strides forward in that regard. They now publish regular attestation reports prepared by independent accounting firms, which include the composition of their funds. And both stablecoins operate ​​multiple blockchains, which mitigates operational risk and allows for faster transfer, lower transaction fees, and supports innovation.

Alternative stablecoins to consider

For those seeking alternatives to Tether and USD Coins, there are almost 100 to choose from. In a recent blog, we looked at nine other stablecoins that businesses may want to consider. Together with Tether and USD Coin, they represent 98% of all stablecoins, measured by market cap. This is an important criteria. As we have read, stablecoins are not without risk. Those with relative maturity, deep liquidity and scale are more likely to withstand market shocks and navigate evolving regulations.

Four of these stablecoins—Binance USD (BUSD), True (TUSD), Pax Dollar (USDP) and Gemini Dollar (GUSD)—share the same fiat-collateralised mechanism as Tether and USD Coin. We think they present businesses with the easiest way to bridge traditional and cryptocurrency payment and settlement rails, and so support a flexible approach to stablecoin adoption. Our list also includes two stablecoins that are backed by gold; Pax Gold (PAXG) and Tether Gold (XAUT). Gold has been considered a reliable store of value for centuries, and its value is ​​less volatile compared to other assets.

Another alternative type of stablecoin is algorithmic (also known as non-collateralised or seigniorage-style stablecoins). These stablecoins use algorithms and smart contracts to control the supply and value of the stablecoin. Algorithmic stablecoins can be an option for businesses that want to mitigate the counterparty risk of a centrally-administered stablecoin, such as Tether and USD Coin.

These ‘decentralised’ stablecoins are considered trustless, in that their code can be accessed and audited by anyone, and reserves and issuances are publicly recorded on the blockchains. But decentralised stablecoins are never entirely independent. They can be influenced by their governance model and operating protocols. Dai (DAI) is the largest algorithmic stablecoin, and the third largest by market cap after Tether and USD Coin.

However, algorithmic stablecoins have proved to be less reliable than collateralised stablecoins , and are more prone to sell-offs when the market loses confidence. The TerraUSD stablecoin is a high profile example. In May 2022, it became depegged from the dollar and lost almost all of its value. Basis Cash, Empty Set Dollar and Dynamic Set Dollar are other examples of when an algorithmic stablecoin loses its stabilising peg.

Conclusion

Tether and USD Coin are fast becoming mainstream financial instruments for payments and settlements. Any price unpredictability, regulatory controversies, and counterparty risks should be put in the context of the traditional banking and payment infrastructure, which is not immune to uncertainty and negative headlines.

Ultimately, the choice between Tether and USD Coin depends on the criteria you prioritise. Tether has a longer history and larger trading volume, but has faced controversy over its reserve assets and ownership. (Tether Limited is a subsidiary of iFinex Inc., which is based in Hong Kong and has been reported to have connections with the Chinese government.) USD Coin has less liquidity, but has been more transparent about its reserve assets.

It is not necessary for businesses to choose one stablecoin over another. Businesses may choose to access the benefits of both, which in turn mitigates their individual risks. Adopting more than one stablecoin does not need to equal additional complexity.

Businesses can leverage fintechs, such as BVNK, to incorporate stablecoins into their fiat payment and settlement flows. BVNK takes on the full exposure to the stablecoin when converting it between fiat currencies, and has an experienced in-house legal and compliance team that navigates the changing regulatory climate to ensure clients are always protected.