USDC vs USDT
18 October 2021
You’ve heard about USD Coin (USDC) and Tether (USDT). You know they’re both pegged to the US dollar. So what’s the difference? Why are there two separate cryptos designed for the same purpose? Which is the better one in which to invest?
If you’ve been asking these questions, this article is perfect for you, as we will break down the differences and similarities between USDC and USDT to help you make informed investment decisions.
Why are there so many USD stablecoins?
The largest USD stablecoins in market capitalisation are USDT, USDC, BUSD (Binance USD) and DAI (Dai).
But why are there so many stablecoins pegged to USD when ultimately all achieve the same thing? As we will see in the following sections, different stablecoins operate on different blockchains, facilitating access to different crypto assets. While one token always equals $1, they differ in their liquidity, fundamental values and features.
What is USDC?
USDC is a stablecoin that is pegged to the price of the US dollar - so 1 USDC = $1.
It was launched in 2018 by a partnership between Coinbase and Centre (Centre Consortium). The token was first listed on Coinbase and has been integrated on other exchanges ever since, such as Binance and the SwissBorg app. An important update of USDC was the introduction of gasless sends in August 2020, which gives the possibility of paying gas fees in USDC instead of ETH.
How does USDC work?
USDC is powered by the ERC-20 smart contract in the Ethereum blockchain and is also supported on other blockchains (Algorand, Solana, Tron, Stellar). It is an open-source project, which makes it a transparent and verifiable stablecoin on the blockchain.
Transparency is provided by regular audits that are operated to ensure that the circulating supply of USDC equals the amount of USD held in reserve bank accounts. This process works by sending USD to these bank accounts, which are then used to create an equal amount of USDC through a smart contract and sent back to the user.
Even though the stablecoin is issued by third-party American institutions and thus provides stability and safety, USDC poses a problem in that it is a centralised stablecoin. This means that Centre Consortium has so much control over it that they can make any decisions that will affect the stablecoin.
What is USDC used for?
Many institutions have successfully adopted USDC for payment purposes. As an example for its wide adoption across institutions, Visa has supported USDC as a transaction settlement through crypto.com as of March 2021. USDC thus provides an institution-oriented solution for transactions on the Ethereum blockchain, ensuring the stability of the coin.
What is USDT?
Tether (USDT) was the first stablecoin in the crypto market, and it is the largest stablecoin in terms of market capitalisation, with over $64.5 billion. Backed by Tether Limited, USDT was launched in 2014.
As of 2021, USDT is the most traded stablecoin in the market, as the ability to quickly switch blockchains holds many advantages without getting involved in volatility. In fact, it mostly operates on the Ethereum blockchain but also exists on other blockchains, such as Bitcoin, Tron and EOSIO.
Like USDC, USDT’s price is pegged to the US dollar, where 1 USDT = $1.
How does USDT function?
USDT is issued and governed by Tether Limited, making it a centralised stablecoin.
With regards to its proof of funds, critics have raised concerns about Tether’s transparency in the last few years, as it was ambiguous as to what USDT is exactly backed. However, this issue was settled by the New York Attorney General after a legal dispute that started in 2019.
Tether has recently published an attestation report providing a detailed composition of its reserves to prove its commitment to transparency. More than half is held in commercial paper, a form of short-term corporate lending and the rest is made up of fiduciary deposits, cash, reverse repo notes and treasury bills. Although there has been a controversy around USDT, Tether assures that USDT is fully backed. Additionally, their balances are published, and the circulation of USDT can be checked via the Omni Layer protocol on the Bitcoin blockchain.
What is USDT used for?
Due to transaction-free transfers on any Omni Layer supported wallet and the relatively quick transaction, USDT is useful for trading. It is also used for instant payment and transfers on the blockchain.
Similarly to USDC, investors use it to counteract volatility and earn a yield while holding it.
USDC vs USDT
Now that we’ve covered the main features and values of our two leading stablecoins, we can establish their similarities and differences.
Let us recall that both USDC and USDT mostly operate on the Ethereum blockchain and are pegged to the US dollar.
But what are their differences?
USDT is conveniently used for trading and payment purposes. By moving between crypto-assets and fiat currencies, traders can thus secure their positions while staying in the crypto market. Although USDC is also used for trading, USDT has a higher trading volume and liquidity, thus facilitating more transfers between crypto-assets and the stablecoin. Since USDT supports transfers on a greater number of blockchains, it might be more interesting for traders to choose USDT rather than USDC, depending on the trading pair.
USDC is often described as a safe and trustworthy stablecoin because Centre Consortium complies with regulation and is fully backed by cash in a transparent way. In contrast, there is still some ambiguity around the way USDT is backed, which has caused a feeling of insecurity towards that stablecoin.
In essence, both USDC and USDT can be widely used in exchanges for investing and trading. Since they are supported on different blockchains, the stablecoin you choose will depend on which crypto asset you want to buy through available trading pairs.
Whether you should use USDC or USDT does not necessarily have to be an either/or choice.
Since both USDC and USDT are stablecoins, holding onto only one of them exposes the risk of losing your funds if the company backing the stablecoin goes bankrupt.
Earning a yield on your stablecoins
The SwissBorg app offers an easy way to start investing in both USDC and USDT on the ERC-20 blockchain. With SwissBorg’s Smart Yield wallets, you can earn attractive yields on both USDC and USDT every 24 hours, with the possibility of doubling your yield if you’re a Genesis Premium user. Check out our yield rates for stablecoins and other crypto assets here.
Bringing it all together
USDC and USDT are both stablecoins that are pegged to USD, and they can be used for trading and/or investing. While USDT is the most liquid stablecoin, it has a history of controversies over the years, which may have led institutions to adopt USDC over USDT.
Ultimately, whether you choose to use USDC or USDT, it is always recommended to do your own research to understand which stablecoin is a better fit for you.
Download the SwissBorg app today and let your stablecoins work for you by earning attractive yields every day!