USDC Vs. USDT
USD Coin (USDC) and Tether (USDT) are the two leading cryptocurrency stablecoins. They both make attractive hedges in the bear market due to each one being pegged to the US dollar. Their transparency and ability to quickly transfer between blockchains for various financial services make them excellent assets in any portfolio for DeFi and remittance.
What is USDC?
USDC, or USD Coin, was launched in 2018 by the Centre Consortium, USDC is self-styled as “digital money for the digital age.” It is an open-source project now run by Coinbase and Circle Pay.
Backed by cash reserves and U.S. Treasury bonds, USDC is a solid asset not only because of its anchor to the fiat dollar but because of its transparency.
When algorithmic stablecoins lost their pegs in wake of the crypto crash, USDC became one of the first safe havens for investors to flock to.
It is built on Ethereum and secured by the ERC-20 protocol; as such, it is fully compatible with all Ethereum-based smart contracts. It is also supported by Visa making it a more respected cryptocurrency within the traditional financial industry.
What is USDT?
Tether (USDT) is the world’s first stablecoin. Launched by a Hong Kong-based company, Tether Limited in 2014, it holds several advantages for protecting against market volatility while still allowing investors to switch between blockchains.
There has been some controversy around exactly how Tether is backed by the US dollar. Its liquidity pool is a complex mixture of cash, debts and treasury bills. This has raised concerns among investors.
However, the company emphasized its commitment to transparency in a 2021 report showing their balances are fully backed and their reserves can be checked on Bitcoin’s Omni Layer protocol.
Similarities
USDC and USDT are both tied to the US dollar on a 1:1 basis.
Each one is fully committed to transparency, regularly publishing their balances, circulation, and proof-of-reserves.
Both are built on Ethereum, in conjunction with Ethereum-based blockchains and smart contracts, and are secured by the ERC-20 standard.
Tether and USD Coin can both be lent out at high-yielding interest rates.
They both make excellent options for people travelling abroad to different countries where fiat exchange rates to the US dollar can be very complex and time-consuming.
Differences
Unlike USDC, Tether is not directly tied to the fiat dollar on a 1:1 basis; rather, it is backed by a fractional reserve system that holds the equivalent number of dollars to the number of coins issued.
Where USDT is decentralized, USDC is centralized under the Centre Consortium. This means that the consortium can make changes to the coin (such as protocol, circulation or balance) without the consent of coin holders.
USDC is generally used for payment purposes while USDT is mostly used for trading.
Tether is the more liquid coin of the two. However, it has faced legal action over exactly how its asset is backed. This controversy was settled in 2019 with the New York Attorney General’s Office.
Tether is unique in that while it mostly operates on the Ethereum blockchain, it also works on Bitcoin, Tron and EOSIO. USDC is compatible with Algorand, Solana, Tron and Stellar.
USDC Vs. USDT
One major example of their difference is highlighted in the Terra LUNA debacle. Having multiple stablecoins tied to the same dollar is important because different stablecoins are associated with different blockchains and crypto assets, providing exposure or protection to portfolios.
When Terra crashed on May 12 investors shot up USDC past its peg to $1.0075 the very same day:
USDT crash on May 12, 2022. Image: courtesy CoinMarketCap.com
Conversely, on the same day, USDT lost 3% before reclaiming its full dollar position:
USDT crash on May 12, 2022. Image: courtesy CoinMarketCap.com
This occurred because most investors had used USDT to buy and sell Terra LUNA and had to reclaim USDT before exchanging fiat dollars.
Market response
In purely financial terms, Tether is favored by the market with a market cap of over $65 to USDC’s $55B market cap.
In terms of volatility, Tether is more volatile than USDC because the fundamentals of Tether’s peg to the US dollar are more complex and varied. This also makes its backing more ambiguous when compared to the USDC dollar peg.
As cryptocurrencies continue to mature and are adapted by more investors all stablecoins will continue to change how they are secured. For now though, Tether and USDC will remain the leading stablecoins and will be welcome assets in the bear market.
