USDC vs. USDT: What’s The Difference?

One of the riskiest things about investing in crypto is its volatility. Navigating the cryptocurrency space is often compared to riding a roller coaster. In the last decade and a half, crypto holders have witnessed remarkable highs and gut-wrenching lows—with prices sometimes skyrocketing over the roof only to dump in the blink of an eye.

In 2022, Bitcoin experienced notable price fluctuations, reaching a 10-day volatility of nearly 100%. The year 2021 saw Bitcoin’s value swing between $28,383 and $65,000, recording an annualized volatility rate of a staggering 81%.

Stablecoins play a crucial role in addressing this roller coaster effect. By maintaining a collateralized peg, they strive to be less volatile compared to other cryptocurrencies. Investors often turn to stablecoins as a strategic buffer, safeguarding their portfolios against sudden price swings that may affect other cryptocurrencies or traditional assets.

These stablecoins are the bread and butter of the crypto industry, providing a reliable bridge between the volatile crypto market and the stability provided by traditional fiat currencies.

USD Coin (USDC) and Tether (USDT) are the two most prominent stablecoins in the market, and in a minute, we’ll look at these in more detail to help you figure out which stablecoin is a better fit for your needs.

What are stablecoins?

Stablecoins represent a specific category of cryptocurrency whose value is “pegged” or tied to another stable asset, such as fiat money, financial instruments, or commodities. The most common peg for stablecoins is the U.S. dollar. When it is backed to a fiat currency, it’s called a fiat-backed stablecoin. 

The whole idea behind stablecoins is to ensure stability and prevent the notorious price fluctuations associated with traditional cryptocurrencies like Bitcoin and Ethereum. In essence, they attempt to provide a stable value and offer resistance against the fluctuations that other crypto assets are susceptible to.

Stablecoins offer users the benefits of cryptocurrencies, such as fast and secure transactions on blockchain networks, while minimizing the risks associated with price swings. As a result, stablecoins have gained significant traction in the crypto market and are increasingly being adopted by individuals and businesses alike.

USD Coin (USDC) and Tether (USDT) are the most widely recognized fiat-backed stablecoins in the crypto ecosystem. They are pegged to the US Dollar and appear on major cryptocurrency exchanges, applications, and wallets.

What is USDT?

Launched in 2014, USDT, or Tether, is a centralized, fiat-backed stablecoin issued by Tether Limited. It was designed to maintain a stable value by pegging it to a traditional fiat currency, in this case, the US Dollar. 

USDT operates on various blockchain platforms, including Ethereum, Tron, and others, providing users a stable alternative to more volatile cryptocurrencies like Bitcoin and Ethereum. It is widely used as a trading pair on cryptocurrency exchanges and is a popular choice among traders in the market. As of the time of writing, it’s the most popular stablecoin there is and accounts for over 61% of all transactions undertaken in the crypto market.

The distinctive feature of USDT is its 1:1 peg to the US Dollar, ensuring that each circulating USDT token is theoretically backed by an equivalent reserve of US dollars. This pegging mechanism is intended to maintain a stable value over time.

Being the oldest and most widely used USD stablecoin, Tether holds a significant position in the market, boasting a market capitalization exceeding $90 billion. It’s also the market’s most used trading pair by volume and can be used to buy or swap for other cryptocurrencies.

As one of the most widely used stablecoins, USDT has gained popularity among traders and investors seeking a reliable bridge between traditional financial systems and the world of cryptocurrencies. You wouldn’t be wrong if you called USDT the electronic dollar of the crypto space, as it’s widely used to conduct all kinds of transactions.

What is USDC?

On the other side of the stablecoin spectrum, we have USDC, which is short for USD Coin. Launched in 2018 as a collaborative effort between Circle (Circle Internet Financial) and Coinbase exchange, this stablecoin boasts of being the second most popular stablecoin in the market after USDT. Together 

USDC basically provides users with a digital representation of traditional currency, offering a sense of security in the volatile crypto space.

Operating on the Ethereum blockchain following the ERC-20 standard, USDC is essentially a tokenized U.S. dollar, maintaining complete parity with the value of the dollar, i.e., always equal to $1. 

Essentially, the goal was to create a token that could safeguard traders and investors from the inherent volatility often associated with other cryptocurrencies, which is why it was designed to maintain a one-to-one ratio with the greenback. By pegging it to the US Dollar, each USDC token in circulation is backed by an equivalent amount of US dollars held in reserve, guaranteeing a 1:1 peg.

By maintaining this constant rate, USDC offers users a secure and steady digital asset, making it a preferred choice for those seeking a stable store of value and a means of transaction within the crypto space.

USDC can be stored in various types of wallets, including browser-based, paper, hardware, electronic, mobile, and cold wallets. Since it operates on the ERC-20 standard, any wallet supporting this standard is suitable for storing USDC. 

USDT vs USDC: A Comparative Analysis

When it comes to stablecoins, USDC and USDT are two popular choices that investors often consider. While both aim to maintain a stable value, there are key differences between the two. But before that, let’s look at their similarities.

USDT vs. USDC: What Are Their Similarities?

Before we compare their differences, let’s begin with their similarities.

• Stable Value: Both stablecoins are almost indistinguishable, their primary difference being their market cap. They both peg their value to the US dollar to minimize volatility. This stability makes them a great store of value and an effective medium of conduct exchange.
• Fiat Peg: Both USDT (Tether) and USDC (USD Coin) are stablecoins pegged to the value of the US Dollar. This pegging mechanism ensures that their values closely track that of the US Dollar.
• 1:1 value ratio with USD: Both Tether and USD Coin maintain a 1:1 value ratio with the US dollar, ensuring that each token corresponds to a dollar held in reserve. However, it’s important to note that Tether’s reserves now include assets beyond fiat currency, as announced on their website in 2019. Despite this, both stablecoins remain pegged to the dollar, with 1 USDT or USDC always valued at 1 USD.
• Trading Pair: Both stablecoins are commonly used as trading pairs on major cryptocurrency exchanges, allowing for easy conversion between cryptocurrencies. Traders often utilize USDT and USDC as base or quote currencies in various crypto trading pairs.

• Widespread Adoption: Both stablecoins are extensively used and accepted across major cryptocurrency exchanges, wallets, and applications. They are common trading pairs and facilitate liquidity in the crypto market.
• Use in DeFi: Both stablecoins are actively used in decentralized finance (DeFi) applications. Users can leverage USDT and USDC for activities such as yield farming, staking, and providing liquidity to decentralized exchanges and pools.
• Blockchain Compatibility: Both USDT and USDC had previously functioned entirely on the Ethereum blockchain but have now gained traction, enabling them to operate on various blockchain platforms and offer flexibility to users.
• Blockchain Transparency: Tether and USD Coin both offer blockchain transparency, enabling users to track transactions and verify their authenticity, promoting trust and accountability.
• Accessibility & Speed: Traders and investors commonly use both USDT and USDC to move funds quickly and efficiently within the crypto ecosystem. Both stablecoins excel in rapid transferral, making them suitable for seamless peer-to-peer transactions.

USDT vs USDC: What Are Their Differences?

• Issuer: USDT is issued by Tether Limited. It was launched in 2014. On the other hand, USDC is jointly issued by Circle and Coinbase through the Centre Consortium. It was launched in 2018.
• Transparency & Stability: Tether (USDT) has faced criticism for regulatory and transparency lapses, including scrutiny over reserve adequacy, such as the 2017 hacking incident, which resulted in the loss of about 31 million USDT tokens. Tether faced controversy for lending out cash reserves without sufficient backing. On the other hand, USD Coin (USDC) is known for transparency, conducting regular audits of fiat reserves and providing attestation reports from independent accounting firms, enhancing user trust.

• Blockchain Platforms: While USDT initially launched on Ethereum, it expanded to various blockchains, including Omni (Bitcoin-based), Tron, and others. In contrast, USDC primarily operates on the Ethereum blockchain, providing stability and security within the ERC-20 standard.
• Volume: With over $90 billion in market cap, USDT is unarguably the most used stablecoin worldwide. Its massive adoption places Tether as the third-largest crypto asset by market capitalization, trailing only behind Bitcoin and Ethereum. USDC boasts a current market capitalization exceeding $27 billion, positioning it as the second most widely used stablecoin globally, trailing only behind USDT.
• Use Cases: Popular as a trading pair, USDT is widely accepted for crypto-to-crypto transactions and is extensively used in DeFi protocols. USDC, on the other hand, is favored for its stability and regulatory adherence, making it a preferred choice for various financial transactions and investments.
• Reserve: Tether claims to be backed by a mix of traditional currency and other assets. However, the specific details of the composition of these reserves have faced scrutiny. Periodic attestations have been provided to address concerns, but the nature of these “other assets” remains a point of discussion and scrutiny within the crypto community. In contrast, USD Coin operates with a transparent and straightforward reserve system, directly by actual US dollars held in reserve bank accounts. This approach ensures a clear and direct correlation – for every USDC token in circulation, an equivalent amount of US dollars is securely held in reserve, providing a straightforward and reliable backing.

Ultimately, these differences make USDC a more transparent and trustworthy stablecoin option compared to USDT.

Deciding Between USDT and USDC: Which Stablecoin Is Right For You?

Choosing between USDT and USDC depends on various factors, including trust, transparency, and stability. Both stablecoins have faced controversies and questions about their issuance processes and security.

USDT, in particular, has been criticized for its lack of transparency and failure to fulfill promised audits, leading to doubts about the adequacy of its reserves. Notwithstanding, it’s been around longer and has a larger market cap, which could be seen as a sign of stability.

On the other hand, USDC is issued by regulated financial institutions and undergoes regular audits to ensure transparency and accountability. USDC is often considered more transparent due to its monthly audit reports and clear reserve composition, making it easier to track collateral.

This may appeal to those who prioritize trust and regulatory compliance. But USDC is not without its own fair share of concerns, such as when it lost its peg to the U.S. dollar after Circle announced the loss of reserves worth over $3.3 billion at the bankrupt Silicon Valley Bank.

In the same vein, Tether follows a partial collateralization model, relying on a mix of cash, loans, and various assets for backing, while USDC is fully collateralized, ensuring that each token is backed by an equivalent sum of U.S. dollars held in reserve.

My point? The question of what coin you should go for ultimately depends on your priorities and preferences. If your primary concern is transparency and regulatory compliance, you’ve found your guy in USDC. However, if you’re more about track record and wider adoption, then  USDT may be the more appealing choice.

After now, you’d want to assess your specific needs and weigh your risk appetite and tolerance to enable you consider the pros and cons before settling on a choice.

Concluding Thoughts

With multi-billion-dollar market caps, USDT and USDC stand as leading stablecoins, making substantial impacts globally. While complex decentralized instruments are not yet ubiquitous, those coins are already taking root in the real-world economy. Their growing prevalence signals a gradual shift away from traditional fiat currencies, solidifying their role as the future of financial transactions.

Frequently Asked Questions (FAQs) on USDC and USDT stablecoins

Let’s answer some questions you may still be having: