An important part of navigating the crypto world is understanding stablecoins. These are cryptocurrencies that are pegged to the price of a fiat currency, such as the US dollar. However, at first glance, it can be hard to figure out which stablecoin is right for you. With this in mind, let’s take a look at the two leading stablecoins on the market, and assess USDC vs USDT.
What is USD Coin (USDC)?
USD Coin, or USDC, is a stablecoin created by Circle. It is pegged to the US dollar, with a 1:1 reserve ratio. This means that for every USDC that is in circulation, there is an equal amount of US dollars held by Circle, used to back it and keep its value consistent and aligned.
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What is USDT (Tether)?
Tether, or USDT, is also a stablecoin that is pegged to the US dollar. It is created by a company of the same name, Tether. Like USDC, Tether presents itself as having a 1:1 reserve ratio, however, its transparency has been questionable in the past, and so this occasionally becomes up for debate.
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What are Fiat-Backed Stablecoins?
A fiat-backed stablecoin is a cryptocurrency that has a value that is equivalent to a fiat currency, or legal tender. This means that one stablecoin will be worth the same as the fiat currency it represents. This is made possible by the project running the stablecoin ensuring they have a 1:1 ratio of fiat held in reserve, used as a way of adding value to their own asset and keeping it equal.
Both USDT and USDC are fiat-backed stablecoins that reflect the value of the US dollar. This means that the companies that run them (Circle and Tether) are meant to have a reserve of US dollars (or other equivalent investments, such as short-term debt securities).
Why are there so many USD stablecoins?
The majority of stablecoins on the market reflect the US dollar because it is widely recognized as the world's primary reserve currency and holds a dominant role in global trade and finance. Many countries, businesses, and markets look to the dollar as an economic barometer, and so they prefer trading with it. Plus, in developing nations and countries with unstable finances of their own, individuals may prefer to use the US dollar as it may fluctuate less than their native currency. This has led to many companies creating USD stablecoins as it appears to be favored by a variety of people around the world.
The fact that the crypto market is still relatively new also means that there is no one standard for creating and maintaining stablecoins, and no company has a complete monopoly on the industry. This encourages other projects to create their own stablecoins and gain recognition. That being said, USDT and USDC are by far the largest two USD stablecoins in terms of circulation.
Advantages of Stablecoins
Let’s take a look at the advantages of using stablecoins, as opposed to using standard cryptocurrencies or focusing on fiat.
Ease of Use in Crypto. For crypto traders and people who prefer to make transactions using cryptocurrency, having a store of stablecoins makes for an easier experience. Traders enjoy this because it means they can make quick exchanges without having to constantly convert to and from fiat.
Easy to Access. For people in developing nations with unstable fiat currencies of their own, or in countries that have political conflicts with the US, obtaining USD stablecoins is much easier than obtaining actual US dollars. Despite how tough it can be to get USD, many people in these countries may still want to use them because they could be more stable than their own native currency, or because US dollars are typically viewed as a global currency. This means they are held in high regard. Stablecoins enable people to enjoy this benefit, even if fiat dollars are too hard to get hold of.
Stablecoins Do Not Fluctuate (much). Crypto users may prefer to store their wealth in a stablecoin, rather than keep it in the form of another cryptocurrency, because they are designed to hold their price and value. In an industry where assets are notorious for fluctuating significantly, being able to hold digital currencies that keep to one consistent price is highly favored. This is especially the case for day traders, who like to keep their money in crypto so they can make quick exchanges, but do not want to worry about value-changes. For people in countries that have unstable fiat currencies, USD stablecoins offer the same benefit, but on a larger scale. Even if these individuals do not want to day trade, they may enjoy the benefit of increased stability without worrying about the health of their own nation’s currency.
USDT vs USDC
With this in mind, let’s delve deeper and take a look at the key similarities and differences between USDC vs USDT.
USDT and USDC the Similarities
Let’s start with the similarities.
Both are USD Stablecoins. Both USDT and USDC are US-based stablecoins. This means that they are both pegged to the US dollar. Technically this means that one USDT is equal to one USDC, as they both represent USD itself. In reality, stablecoins do fluctuate a little, and so at times they might be worth for example 0.99991 USD, or 1.0001 USD.
Both Have Reserve Backing. USDC and USDT both claim to have reserve backing, used to uphold the price of their assets. You can easily see this for yourself regarding USDC on Circle’s website. USDT used to be slightly more cagey about their reserve backing, although nowadays you can see their auditing details on their website as well.
Both are Widely Accepted in the Crypto Space. USDT and USDC can be found on most crypto platforms, both centralized and decentralized. This includes trading platforms, as well as lending companies. They are the two most well-known and often-used stablecoins in the market.
Both are Centralized. USDT and USDC are both managed by highly centralized companies (Tether and Circle, respectively). This sets them apart from most other cryptocurrencies, which are decentralized in nature. The reality is that it can be quite hard to create and maintain a stablecoin in a decentralized framework, and so centralized options tend to be favored. That being said, some decentralized alternatives do exist, the most popular of which is DAI, by MakerDAO.
USDT vs USDC: the Key Differences
Now let’s take a look at some of the major differences that separate USDC vs USDT.
USDC Has A Stronger Reputation for Transparency. USDT has had various struggles in the past, with regards to its transparency relating to its reserve backing and ratio. For a long time, the company was relatively closed and opaque about its reserve ratio, leading many people to question its legitimacy. Since then, USDT has worked on its reputation and has actively tried to be more transparent about its inner-workings. However, it may be too little; too late, as the crypto world is still naturally skeptical of them. USDC, on the other hand, has gained recognition for being consistently open and transparent about its ratio and its reserve. This is because it has always posted its in-depth attestation reports, which can be viewed by anybody.
USDT Has More Circulation than USDC. Despite both USDC and USDT being the leading stablecoins on the market, there is a huge gap between their individual circulation. As of 2023, USDT has around 66% of the market share for stablecoins, whereas USDC only has around 20%. This is a stark difference. For the most part, this will not affect the average crypto user, although a higher market share and circulation means that USDT is technically more accessible.
USDT Has Existed for Longer. USDT was launched in 2014, whereas USDC was launched in 2018. This partially explains why USDT has a higher market share, as it has simply been around for longer. It also shows that it is a pioneer of the stablecoin market. Typically, we associate age and legacy with trustworthiness, but in the case of USDC vs USDT, it is not that simple. Despite USDT’s longer history, the fact that it has struggled with being open and transparent makes it more worrisome than USDC. In fact, we could say that USDC learned from the lessons of USDT, and used it as a springboard for building a better and more transparent product.
USDC Vs USDT Which is Safer?
When it comes to USDT vs USDC, it is important to consider how safe they are to use. In truth, all stablecoins contain some level of risk, as is the case with any cryptocurrency. This is because these are relatively new assets, and so there is no saying how they will pan out in the future. However, stablecoins come with some additional concerns.
While stablecoin are typically seen as less risky than other crypto assets (due to strong attestation reports and the fact that they are backed by reserves), they do still have some elements that can lead to risk. For instance, if the company behind a stablecoin becomes insolvent suddenly, or it is found that their reserve data was falsified, it could cause a tremendous depegging, which is where the stablecoin no longer reflects the price of its accompanying fiat asset, and drops dramatically in value.
Another concern is related to the assets being used for backing themselves. If the fiat asset undergoes some level of intense inflationary activity, or begins to rapidly lose its value against other assets on the world stage, then any stablecoins pegged to this asset would mimic the same fall in value. In the case of USDC vs USDT, this would happen if the US dollar suddenly became devalued globally. While this is relatively unlikely, it is not impossible, and in a post-COVID age where financial stability is tough and recessions are becoming the norm, there is a non-zero chance of something like this happening.
With that being said, this type of risk is still relatively minimal, and so this should not dissuade people from getting involved with stablecoins. When it comes to USDC vs USDT, it is hard to say with complete clarity which would be the safest option, however, people tend to view USDC more favourably. This is because it has a strong track record of being transparent about its reserves, and offering its attestation reports to the public. This level of openness tends to place it above USDT when it comes to risk.
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Should I use USDC or USDT?
It is hard to say which stablecoin will be right for you, as it will depend on what you want to use it for, and what you value most. If transparency is of the utmost importance to you, then USDC may be the way to go. If you are looking for a cryptocurrency that has more circulation and market share, making it more globally distributed and available, then USDT could be more suitable.
How Can I Get Good Returns On My Stablecoin Holdings?
If you hold significant amounts of either USDC or USDT, then there are several options available for gaining good returns. If you have USDC, then you can take advantage of Ledn’s Growth Accounts– these are savings accounts that currently offer up to 8.50% APY on your USDC or USDT deposited. Much like Circle, the team behind USDC, is also highly transparent about how they operate, and so you can find their proof-of-reserve data on their website. Unlike many other lending companies, Ledn ensures that the Growth account assets are only exposed to counterparties that generate yield for you, rather than opening your assets up to other parties. This helps to keep your money safe and fully accounted for when you work with Ledn.
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Conclusion
Overall, there is no clear winner when it comes to USDC vs USDT. In many ways, it comes down to what you are looking for in a stablecoin, and what aspects you value the most in such an asset. Before jumping into either of these stablecoins, you should think about why and how you would want to use them. If you are looking to make strong returns, then opening a Ledn Growth Account can yield some highly competitive returns. To learn more about crypto lending and borrowing, check out our ultimate guide to crypto lending platforms.
Sponsored by 21 Technologies Inc. and its affiliates (“Ledn”). All reviews and opinions expressed are based on my personal views.
