USDT vs USDC: Difference between Top Stablecoins (2024)

Introduction

The dynamic nature of the crypto world consists of tokens that have their value fixed as they are pegged to the dollar or a fiat currency. These tokens are collectively known as stablecoins. To better understand the stable tokens, we will take a quick dive into two of the most popular fiat-backed stablecoins, Tether USDT and USDC. In this article, we will discuss their features and similarities, compare Tether USDT vs. USDC, and more.

But first, a quick look at the basics.

What are stablecoins? How do they work?

Stablecoins are low-volatility or stable cryptos backed by a real-world asset like fiat currency, the US dollar. There are several stablecoins out there with different mechanisms, such as algorithmic, fiat-based, commodity-based, and crypto-backed. In a nutshell, stablecoins strive to offer a substitute for the significant price fluctuations seen in the most widely used crypto tokens like Bitcoin (BTC), which have rendered crypto investments less practical for everyday transactions.

Fiat-backed stablecoins maintain reserves in fiat currencies such as the U.S. dollar, ensuring that there is typically one dollar in reserve for each token in circulation, either in the form of cash or cash equivalents. These reserves are overseen by central entities that conduct regular audits of their funds and collaborate with regulatory authorities to ensure compliance. Consequently, individuals looking to purchase stablecoins directly from the creators must undergo Know Your Customer (KYC) and Anti-Money Laundering (AML) verification processes similar to those conducted on crypto exchanges. These procedures entail the collection of users’ personal information, including a copy of their government-issued identification.

Once in circulation, stablecoins can be freely sent and received by anyone. However, the central entity responsible for issuance may possess the authority to freeze funds in specific addresses. This power has been exercised in the past, with issuers cooperating with law enforcement for investigations or attempting to recover stolen funds, among other reasons.

Read More: Top Stablecoins List in 2023

What is USDC?

USDC stands for “USD Coin,” and it is a type of crypto that is known as a stablecoin. Stablecoins are a category of crypto designed to have a stable value, typically by being pegged to a reserve of assets, such as traditional fiat currencies like the US dollar. USDC, in particular, is pegged to the US dollar on a one-to-one basis, meaning that one USDC token is intended to always be worth one US dollar.

While Tether remained the most popular stablecoin, it was also under scrutiny concerning US dollar reserve and management. That led to the rise of several US Dollar pegged stablecoins which have transparent auditing, funding, and regulation. One of such stablecoin was USD Coin or USDC.

Circle first launched USDC, an ERC-20 token on the Ethereum blockchain, which later expanded to several blockchains, including Solana, Algorand, and more. USDC coin is not produced by mining but is powered by smart contracts. When a user deposits a fiat US Dollar, a USDC token is created through smart contract. Furthermore, when a user redeems underlying US dollars, USDC coins are permanently destroyed to maintain their supply and volatility.

Read More: Why Did USDC Breaks It’s Dollar Peg Post SVB Collapse

Key Features of USDC

• Stability: USDC is designed to maintain a stable value, which makes it useful for various financial transactions, including trading on crypto exchanges and as a means of transferring value without the price volatility often associated with other crypto like Bitcoin or Ethereum.
• Transparency: The issuer of USDC, regulated financial institutions, are required to hold a corresponding amount of US dollars in reserve to back the circulating USDC tokens. Regular audits and transparency reports are conducted to ensure that the tokens are fully backed by real-world assets.
• Use Cases: USDC is used in a variety of ways within the crypto ecosystem. It’s commonly used as a stable store of value, for trading against other crypto, for remittances, and in decentralized finance (DeFi) applications.
• Regulation: USDC is typically issued by regulated financial institutions and operates within the framework of existing financial regulations, which can help reduce regulatory concerns compared to some other crypto.
• Ethereum-Based: USDC was initially launched on the Ethereum blockchain as an ERC-20 token, but it has since expanded to other blockchain networks as well, including Algorand and Stellar.

USDC Volume

With a staggering $25,315,992,971, the stablecoin is currently ranked 6 in market cap. The token is currently standing with a circulating supply of 25,316,024,151 USDC and a 24hr volume of $2,572,042,739 at the time of writing.

What is USDT?

Tether USDT is the third largest crypto in terms of market cap, which is about $83B billion as per CoinMarketCap data. It was first launched on Omni blockchain, a protocol layer of the Bitcoin network, in July 2014 by Hong-Kong based Tether Ltd. It offers users an asset with liquidity and transparency of cryptos like Bitcoin, Ethereum, etc., but with the stability of traditional fiat. It supports multiple blockchain networks and is pegged to fiat, US Dollar in a 1:1 ratio. That means, for every USDT coin circulating in the market, Tether Ltd. needs to maintain an asset reserve more than or equivalent to the total value of USDT for the coin’s price stability.

USDT is often used in the crypto world as a way for traders and investors to move their funds in and out of more volatile cryptos while maintaining a relatively stable value. For example, someone might convert their Bitcoin holdings into USDT during a market downturn to protect against losses, and then convert it back into Bitcoin when they want to reinvest in the crypto market.

However, USDT has been part of several controversies about its level of decentralization and reserve management. The parent company, Tether and Bitfinex were involved in allegations regarding funding and had to pay an $18.5 million penalty under investigation by the New York Attorney General (NYAG). Following these criticisms, Tether Ltd. discloses its cash reserve in monthly reports to ensure more transparency of the USDT coin.

Key Features of USDT

• Price Stability: USDT is designed to maintain a stable value, typically pegged to one United States dollar (USD). This stability makes it a useful tool for traders looking to temporarily exit volatile crypto markets without converting their holdings into fiat currency.
• Liquidity: USDT is one of the most liquid crypto, and it is widely accepted on various crypto exchanges and trading platforms. This means that users can easily buy, sell, or trade USDT for other cryptos or fiat currency.
• Transparency: Tether Limited, the company behind USDT, claims to regularly audit its reserves to ensure that there is a 1:1 backing of USDT tokens with real-world assets, such as USD. However, the level of transparency and the frequency of audits have been a subject of debate and scrutiny in the crypto community.
• Accessibility: USDT can be accessed and used by anyone with a crypto wallet and an internet connection. It is available on many crypto exchanges and can be traded or transferred globally.
• Transfer Speed: Transferring USDT between wallets or exchanges is generally faster and more efficient than traditional bank transfers. This makes it a convenient option for international transactions and remittances.
• Risk Management: Traders and investors often use USDT as a means to reduce their exposure to crypto market volatility. By converting their holdings into USDT during uncertain market conditions, they can protect their capital from significant price fluctuations.

Additional Read: Crypto-Backed vs Fiat-Backed vs Algorithmic Stablecoins

USDT volume

With a staggering $83,365,792,861, the stablecoin is currently ranked 3 in market cap. The token is currently standing with a circulating supply of 83,366,897,434 USDT and a 24hr volume of $17,872,383,112 at the time of writing.

USDC vs USDT

USDT vs. USDC: Key Similarities

• Stable Value: Both USDT and USDC tokens are stablecoin and pegged to fiat currency US Dollar in a ratio of 1:1. Thus, they do not have any price volatility of crypto like Bitcoin, Ethereum, etc.
• Fast Transaction speed: The transaction speed of both USDT and USDC is pretty fast as compared to traditional payment methods, they can be transferred anytime with accessible internet.
• Cheap Transaction Cost: USDT and USDC, being stablecoins, provide transfer of funds at a very low cost than the high gas fees of other crypto assets and traditional finance credit cards, etc.
• Accessibility and Liquidity: The majority of crypto exchanges, wallets, and DeFi protocols support USDC and USDT stablecoin with various trading pairs, having high liquidity and trading volumes.
• Ethereum compatible: USDC coin and USDT are both based on the ERC-20 token and support a wide range of applications, smart contracts, and protocols built-in Ethereum blockchain ecosystem.

USDT vs. USDC: Key Differences

• Reserve Management: USDT asset reserve is managed by issuer company Tether Ltd whereas Circle’s USDC asset reserves are held in the management and custody of top financial institutions, including BNY Mellon and BlackRock.
• Auditing: USDC coin asset reserve is audited by accounting firm Deloitte, with its monthly attestation report published on the Circle USDC website. While USDT provides monthly asset reserve reports, it does not have regular auditing information available publicly.
• Global Adoption: While both USDT and USDC are well-known stablecoins in the crypto market, the Tether USDT market cap is $83 billion, and the USDC coin market cap is only about $28 billion as of June 06, 2023.
• Divisibility: Circle USDC can be divided into units just like fiat, US dollar. However, Tether USDT is not divisible, which sets a limit to its functionalities.
• Transparency: Tether USDT has been in several talks and surveillance concerning its transparent working model, while USDC always maintains its public trust and transparency through regular audits and reverse reports.

Risks of Stablecoins

Even though stablecoins, including popular ones like USDT (Tether), USDC (USD Coin), and others, offer a degree of stability compared to highly volatile cryptos like Bitcoin and Ethereum. However, they are not without risks. Here are some of the key risks associated with stablecoins:

• Regulations: Changing regulations can impact issuance and use.
• Counterparty Risk: Private issuers must be trusted to back tokens with assets.
• Transparency Risk: Varying levels of transparency in reserve asset reporting.
• Centralization: Reliance on a single issuer can lead to issues.
• Technology: Vulnerabilities in blockchain and smart contracts.
• Market Liquidity: Lack of liquidity can affect price stability.
• Trust: Users must trust issuer responsibility and stability.
• Black Swan Events: Unexpected market events can challenge stability.
• Market Risk: Supply and demand fluctuations can affect stability.
• Redemption: Delays or restrictions in redeeming tokens.

Similar to any crypto assets, it is essential for users of stablecoins to conduct thorough research, understand the risks involved, and choose stablecoins issued by reputable and transparent organizations. Diversifying one’s holdings and being prepared for unforeseen circ*mstances is also prudent when dealing with stablecoins or any other crypto.

Should I invest in USDC or USDT?

Both USDC and USDT tokens adhere to a comparable centralized stablecoin framework, but there are significant distinctions in the assets supporting each token as mentioned above.

USDC is fully collateralized, ensuring that every USDC token is backed by an equivalent sum of U.S. dollars held in reserve. In contrast, USDT follows a partial collateralization model, which means that it relies on a mix of cash, loans, and various assets for backing. Additionally, USDC is regulated by the New York State Department of Financial Services (NYDFS), whereas USDT lacks regulation by any significant financial authorities.

Nevertheless, the choice between the two tokens should depend upon you, after you do a deep dive into the tokens and thoroughly understand their applications.

FAQs