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The cryptocurrency world is full of different tokens. These offer various benefits to the users and can differ vastly due to their nature or key characteristics and features. One of these subsectors is, without a doubt, stablecoins.
These special types of coins and tokens offer something that is not very common in the cryptocurrency world – stability. Two of the most popular and biggest stablecoins are Tether (USDT) and USD Coin (USDC). What are their similarities and differences and how can one decide which to use? Let’s explore.
Stablecoins became a solution in the cryptocurrency world to represent a possibility for cryptocurrency investors not to be subject to price swings and volatility. Thus, they are in a way the closest possible fiat-like instrument in the cryptocurrency world, since most of them are pegged to fiat currencies such as dollars or euros. Through this peg, the stablecoins mimic the behavior of fiat currencies, but in the world of cryptocurrencies.
After the TerraUSD (UST) fiasco that happened in the recent weeks, many stablecoins have come to the attention of regulators or policy makers. It is expected that harsher laws or bills will be introduced, especially towards stablecoins. Yet, this sector of cryptocurrencies has been incredibly popular over the past couple of years.
The demand for these tokens started to pick up heavily at the beginning of January 2021, when it was around 30 billion dollars. Only a year later, a combined market share of the biggest stablecoins was 150 billion dollars, with no signs of slowing down.
Out of all the possible stablecoins, Tether (USDT) and USD Coin (USDC) are the most dominant. Their combined share of the stablecoin market is over 80%, with USDT having around 50%, while USDC is slowly increasing and getting to about 30%.
These two stablecoins have been in a close battle for the top position in this subcategory for a long time. And while Tether has an undeniable advantage over USD Coin due to the first-mover advantage, these two stablecoins are not completely alike. Let’s first look at each of them and describe them a bit, before we compare them head-to-head.
Tether is without any doubt the most used and dominant stablecoin. It was created in 2014 as the first stablecoin that tried to bridge the gap between crypto and fiat. It was created by Hong Kong-based company Tether Limited, which has its ties to several exchanges, mainly Bitfinex, which will be very important later on.
Once it was released, countless new trading pairs were created with the USDT, so that the traders could trade these assets in Tether. This stablecoin, which is pegged 1:1 to USD, is platform agnostic, which means that it can be built and used upon Bitcoin, Ethereum, EOS, Algorand, Tron or countless other blockchains.
Just like most of the other stablecoins, Tether is able to provide cheap and fast transactions. Moreover, through different decentralized finance protocols it can allow its holders to earn interest or yield on their investments as a form of a passive income. Additionally, Tether gives merchants a way to denominate their goods or services without the fear of volatility or constant repricing they are offering.
When compared to other stablecoins, Tether has three crucial advantages. The first one was already mentioned and that is the fact that this stablecoin was the first to be created. Through this, Tether has become the most traded stablecoin, which is paired with most cryptocurrencies, providing the second key advantage and that is the number of trading pairs. Last but not least, Tether is the 3rd biggest cryptocurrency, right after Bitcoin (BTC) and Ethereum (ETH). This shows that Tether is an extremely popular and well-recognised name in the world of cryptocurrencies.
But Tether undoubtedly has its fair share of problems. In fact, many consider Tether to be an epicenter of controversies. Most of these are connected to Tether’s relationship with different exchanges such as Bitfinex and Bitstamp, which according to some, makes this stablecoin extremely centralized and easily manipulated.
Moreover, Tether was not audited for a period of time and seemed intent on avoiding it, which definitely did not help its case. The transparency has been a long-lasting problem of this token and even brought it to the attention of regulators such as the SEC. While it seems that Tether tries to get more transparent, the lack of transparency of its early days definitely leaves a bittersweet mark at this stablecoin.
USDC was created a bit later than USDT. In fact, it was created in 2018 by Coinbase and Circle and is now governed by the Centre Consortium that has the main role of overseeing the technical and financial standards for this stablecoin.
Just like Tether, USDC is pegged to dollars with 1-to-1 backing, which is again something that the Center Consortium needs to monitor. It is 100% backed by US dollars, cash equivalents or short-dated US government bonds. USDC can be sent over different blockchains such as Ethereum, Avalanche, Solana, Hedera, Binance Smart Chain or Tron and is thus blockchain agnostic as well. This provides not only different options for the users, but also helps with delivering fast and cheap transactions on some of the fastest blockchains out there.
USDC is considered to be one of the safest stablecoins in this market. Circle and Coinbase, just like the Center Consortium, have gone above and beyond to be as transparent as possible when it comes to the backing of USDC as well as its operation. They go as far as publishing monthly reports and audits of their balance sheet and reserves backing USDC to ensure that their users know exactly how the peg of USDC to USD is delivered.
And these are definitely the strongest factors of USDC. The compliance with regulators and audits that are done on a monthly basis increases the credibility of USDC vastly. Some argue that thanks to this, USDC has become the most trusted and transparent stablecoin of all.
Yet, it needs to be pointed out that USDC is not a decentralized stablecoin. On the contrary, just like USDT, it is governed by a central authority, in this case mostly Circle and Center Consortium, which has a definitive say in whatever happens with USDC. And as we know, the centralisation is not something that many crypto enthusiasts are very fond of.
After a brief introduction to both stablecoins, how do they compare when put side by side? Well, this infographic from MoonPay can serve as a good start and a recap of a few of the basic points and differences between USDT and USDC.
As you might have already figured the two key differences are in compliance/audits and the overall market liquidity. While USDC offers a great deal of compliance and an incredible effort to do everything that is possible to be as transparent as possible, Tether is not so thorough. Thus, if you are looking for a safer option (and probably the safer stablecoin of all), USDC might be more appealing.
On the contrary, if you are mostly concerned with the market depth, liquidity or volumes, Tether definitely stands out. This does not mean that USDC does not have enough trading pairs or liquidity. Not at all, since USDC is the 4th biggest cryptocurrency, with hundreds of different trading pairs.
Yet, while the market cap of Tether is only greater by about 20 billion dollars (USDT 72 billion dollars, USDC 53 billion dollars), the difference in daily volumes is staggering. The daily trading volumes of USDC are about 5 billion dollars, while those of Tether are at almost 60 billion dollars. To put this into perspective, this is almost three times as much as Ethereum and almost double of Bitcoin. Thus, Tether is much more liquid and can provide a wider range of options for those, who are either looking for more exotic investments or have huge liquidity they want to handle.
Thus, the decision between the strengths and weaknesses probably comes down to two main factors. Are you looking for a stablecoin that is trying to be as safe as possible? If so, USD Coin might be the stablecoin of your choice. And if you are looking for high liquidity, transactions or payment options, Tether should serve your needs better.
To put everything in perspective, both USDC and USDT are safe and liquid. Compared to other stablecoins, these two offer the highest number of trading pairs as well as the best safety options. Yet, if we compare them head-to-head, the dominant features and characteristics of each stablecoins can easily be seen.
When choosing which one to use, the decision probably comes down to liquidity versus security. Yet, it needs to be pointed out that, just like with everything else, you do not need to use only one, but you can diversify and spread your capital between both of these stablecoins, giving you the chance to enjoy the benefits of both worlds.
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