Cryptocurrencies are known for their volatility and can fluctuate rapidly in value. As such, they are challenging to use as a store of value or a medium of exchange. Stablecoins come in the mix to solve this problem by offering price stability. USDC and USDT are the most popular stablecoins.
What are USDT and USDC stablecoins, and how do they compare?
What is USDT?
USDT (Tether) is a stablecoin pegged to the US dollar at a 1:1 exchange rate. Therefore, one US dollar is equivalent to one USDT. The stablecoin, issued by Hong Kong-based company, BitFinex crypto exchange, is the largest stablecoin, with a market value of over $83.23 billion.
With the ratio of 1:1 pegged to the US dollar, every USDT token is backed by assets held in reserve. As such, USDT can be spent, transferred, or exchanged much like any fiat currency.
Tether mainly constitutes one of the first cryptocurrencies to address blockchain-related challenges, such as facilitating national currency transfers and providing customers with a method to check the token’s value.
What is USDC?
USDC is a stablecoin created on the Ethereum blockchain according to the ERC-20 standard. The coin is a tokenized US dollar, completely pegged to its value. Every USDC token in circulation is backed by $1 US dollar in cash or cash equivalents.
The stablecoin enables a more efficient transaction of value in a stable digital currency across borders than has been the norm in traditional finance.
USDC’s utility is underscored by its extensive ecosystem of holders and service providers, such as decentralized applications (dApps) and crypto exchanges.
Differences Between USDT and USDC
USDT and USDC help users interact with Web3, DeFi, and other blockchain-based applications while mitigating the volatility of crypto tokens, such as Ethereum and Bitcoin.
USDT has a much larger trade and liquidity volume than USDC, making Tether a more popular stablecoin for traders and investors.
However, as is with most stablecoins with the highest market cap, they have their differences and features.
1. Blockchains
One vital difference between the two is the blockchains on which the stablecoins are found. USDC is situated in the Ethereum blockchain, adopting the ERC-20 token standard. This makes it interoperable with all Ethereum-based applications. On the other hand, USDT is more multichain, covering other networks such as Solana, Algorand, Avalanche, and more.
2. Stability
Over time, USDT’s stability has been questioned, with its price occasionally dipping below $1.00. The occasion drop has led some skeptics to believe that Tether’s dollar reserves may not be fully backed. However, their value has also risen over $1.00 on multiple occasions. USDC is also fully a collateralized stablecoin, meaning an appropriate number of US dollars backs it.
Similarities Between USDT and USDC
Even with their differences, USDC and USDT are almost indistinguishable, only differing in their market cap. However, they have a fixed value pegged to the US dollar, making them less volatile.
They also share the similarity in that they maintain a one-to-one (1:1) value ratio with the US dollar. However, USDT is not entirely backed by fiat now. Tether may also be pegged to other assets and receivables from loans made by Tether to third parties, including affiliated entities.
Both USDT and USDC have a representation on multiple blockchains. They also allow for rapid transfer and low transaction fees. The two also provide transparency in terms of their blockchain transactions. Therefore, users can track their transactions and ensure they get what they paid for.
Besides, USDT and USDC offer rapid transfers, which means they can be transferred quickly and easily. This makes them ideal for peer-to-peer transactions and remittances.
USDT vs USDC: Which is Better?
The choice between USDT and USDC solely depends on your intended use. However, their trust level is below the level of trust in the cryptocurrencies themselves. Both assets have experienced de-pegging, where the price fell below the $1 target.
In October 2018, USDT dropped to as low as $0.92 amid rumors of insufficient backing for USDT and withdrawal issues on the BitFinex crypto exchange. However, it eventually regained its $1 peg.
Similarly, in March 2023, USDC also experienced a significant de-pegging following the sudden collapse of the US-based Silicon Valley Bank due to a bank run. The coin had $3.3 billion worth of assets held in the bank, leading to a sell-off of USDC and a drop in price below $1. However, USDC quickly recovered the $1 peg within a few days.
USDT has the most extended history compared to USDC, holding an advantage in terms of longevity.
Compared to USDC, USDT boasts a significant liquidity volume. In a way, USDT is the most favored stablecoin among traders and investors.
Final Thoughts
Stablecoins are essential to the crypto industry, as they are blockchain-based tokens with a stable value linked to fiat currency. Stable tokens ensure users conveniently transfer and hold value across different crypto platforms. USDT and USDC form a massive bulk of the stablecoin sector’s market cap, which makes them an ideal choice for investors.
It is essential to note the difference between them and also the similarities. Ultimately, the choice of stablecoin may depend on personal preference and what a user’s preferred exchange or wallet supports. The choice may also depend on the specific use case. This is because some stablecoins may have advantages in particular situations over others.