(Last Updated On: September 26, 2023)
Traders are well-aware of the fast-paced market movements of cryptocurrency. In fact, they often view the volatility of digital currency as a feature rather than a flaw, utilizing it to their advantage. However, when it comes to long-term investing or using crypto as a store of value, this volatility can complicate matters.
For these purposes, stablecoins rose to prominence. They are extremely useful for a variety of purposes, including as a medium of exchange, and come with many of the benefits that decentralized crypto possesses. Learn how USDC and USDT compare, as well as how they differ from each other.
It is a type of cryptocurrency whose value is directly correlated with another asset’s price. The majority of stablecoins are pegged to a fiat currency – both USDC and USDT are pegged to the US dollar. Hence, each of these coins is worth one dollar almost exactly. Stablecoins contribute to the stability of an otherwise volatile crypto market.
Volatility and crypto
Imagine agreeing to sell an asset for one Bitcoin but it loses 5% of its value immediately afterward. Cryptocurrencies like Bitcoin can experience price fluctuations of over 10% in just a few hours – or even minutes. Due to their low volatility, stablecoins make great exchange alternatives, with steady exchange rates. Therefore, traders can use them for most transactions.
Despite this, stablecoins still offer many of the crypto features people crave. Some stablecoins are managed by decentralized blockchains, while most are centralized. Besides being exchanged as quickly and securely as Bitcoin, they are also stored in virtual wallets, exchanged for a variety of assets, and keep users’ privacy secure.
A history lesson on USDC vs. USDT
With the launch of the USDC stablecoin in 2018, Centre Consortium, founded by Circle and Coinbase, managed USDC. While Circle Internet Financial manages USDC, the Centre acts as its official regulator. Maintaining transparency for users requires a third party to control the stablecoin.
In late 2014, USDT or USD Tether was launched and runs on OmniLayer, a platform based on the Bitcoin blockchain. Originally called Realcoin, it quickly changed its name to USDT. The stablecoin was pegged to the US dollar 1:1 for the first time. It is regulated by Tether and controlled by it to mint new USDT and circulate it.
Understanding the differences between USDC and USDT
As fiat-collateralized stablecoins pegged to the US dollar, USDC and USDT share several characteristics. They are both useful for routine payments and operate on multiple blockchains, making them more accessible. Stablecoins can be transferred from one peer to another with ease and speed, but they each have some key differences that make it easier to choose between them.
Market Cap: A market cap is a measure of the total market value (or number of coins) of an asset. It is affected by supply and demand, and it gives a good idea of the asset’s potential for growth. In the time of writing, USDC has a market cap of $27 billion, while USDT has an asset market cap of $83.7 billion. There is always a significant market cap difference between the two currencies. USDT has a more liquid trading volume.
Backing: In order to maintain their value, both of these stablecoins are backed by assets. USDC is backed by cash and cash equivalents, while USDT is backed by cash, treasuries, and liquid debt. These assets are reserves, which improve the liquidity of the stablecoin.
Regulation: The USDC is fully regulated, and not just by Centre. It follows US anti-money laundering and know-your-customer regulations. It is consistently regulated by the US. The USDT is less well regulated.
Advantages of USDT
Longevity: USDT holds the upper hand in terms of historical usage, being the older and more established of the two stablecoins. Its longer circulation has contributed to its wider usage.
Trading volume and availability: Of the two, USDT has a much higher trading volume and liquidity, and it is traded on multiple markets, including Ethereum, Solana, Algorand, and Bitcoin Cash’s Standard Leger Protocol.
Liquidity: Due to its market cap, USDT also has a high liquidity rate. High liquidity protects traders from wild price swings.
Market sentiments: There are many traders who prefer receiving or giving USDT in exchange for other assets because of the trust they have in Tether, having used it reliably for nearly a decade.
Advantages of USDC
Transparency and compliance with regulations: A US government regulation ensures that USDC protects customers and prevents financial crime, whereas USDT has been the subject of mild controversy. Tether and Bitfinex were involved in a legal battle with the New York Attorney General’s office in 2021. According to the Attorney General, USDT reserves were improperly used.
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.
Reserves that are less complicated: 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: The USDC redemption process is simpler than USDT’s. USDT has a $100,000 cap and a $150 USDT verification fee. Users must also redeem their USDT through a crypto exchange platform. There is a $100 minimum exchange requirement for USDC redemptions through Circle. Redeeming USDC with a simple bank wire is also possible.
Is USDC better than USDT?
What are the advantages above that make USDC a better option? The answer depends on your goals. USDC is widely considered a good option.
- more secure,
- and perhaps more liquid due to its cash reserves.
The USDT stablecoin, however, has a larger trading volume and reserves, so it may be a better choice for diversification. USD Tether is a good choice if you want to invest in a more widely accessible and widely used stablecoin. On the other hand, you may want a stablecoin that is more secure and easier to redeem. In such a case, USDC by Circle Consortium would be a good choice.
If the USD collapses, what will happen?
Both USDC and USDT are pegged to the US dollar, meaning their values will fall if the US dollar collapses. Cash also backs both USDC and USDT, meaning its reserves and liquidity will also fall.
Even though both stablecoins have de-pegged from the US dollar (falling just under $1.00), it’s extremely unlikely that an entire fiat currency will lose value entirely.
A crypto expert, including BlackRock chief Larry Fink, predicts that crypto may surpass USD instead of stablecoins due to crypto’s international status. Crypto exists in a gray regulatory area for the US and other powerful countries like South Korea, Australia, Germany, Japan, and others.
Stablecoins might become even more popular, even if their value remains unchanged, if cryptos transcend their fiat currencies. (For example, MiCA.)
USDC vs. USDT: Bottom line
You can choose between USDC and USDT based on your beliefs, location, and involvement in the cryptocurrency market, as explained in this article. To ensure USDC or USDT are still strong and stable, you should do your research and stay up to date on the latest news surrounding both options.
Currently, CoinRabbit has both USDT and USDC on its platform for you to try and see what works best for your investment strategy.