In order to maintain value stability and reduce fluctuations, stablecoins are a subset of cryptocurrencies tied to an external reference point, such as the US Dollar. Most often, stablecoins are backed by assets like gold or cash to make sure there are enough reserves to keep the peg. The majority of cryptocurrencies, like Bitcoin and Ethereum, have no backing whatsoever, in contrast to this arrangement. These other cryptocurrencies, in contrast to stablecoins, see significant price swings as a result of traders looking to profit.
Crypto and the blockchain have given rise to a new way of investing and transacting online, but with all the jargon and acronyms, it is easy to get lost in the world of cryptocurrency. In recent months, traders and investors have taken stabs at creating a viable usage for stablecoins like USD Coin (USDC) and Tether (USDT).
Although USDT and USDC are two of the most well-known stablecoins and are both linked to the dollar, they are not the same thing. What distinguishes USDC from USDT then? Which one is better when comparing USDT and USDC?
What are Stablecoins?
A Stablecoin is a digital asset whose value is pegged to that of a fiat currency or commodity to reduce volatility. The idea of stablecoins is to combine the best of both worlds – the security of a decentralized blockchain with the price stability of a traditional currency. Currently, the two most popular Stablecoins are USD Coin (USDC) and Tether (USDT).
USDT and USDC are used by traders to enter and exit trades for other cryptocurrencies, particularly in situations where U.S. dollars are inaccessible and on decentralized exchanges.
They account for a significant percentage of daily trading volume in the crypto market, often surpassing combined volumes for Bitcoin, Ethereum and the rest of the top 10 coins by market cap.
They are both blockchain assets that are pegged to the U.S. Dollar (USD), but there are some key differences between the two.
What is USDC?
USD Coin (USDC) is a stablecoin launched by consortium Centre, created by Circle and Coinbase, in 2018. USDC is an open source protocol, meaning that anyone can use it — not just Circle and their partners.
The USDC is completely backed 1:1 by cash and short-term U.S. government bonds, and it is safe and regulated in the U.S. Since its introduction, it has remained anchored to $1 and is the safest and most reliable stablecoin.
The USDC protocol was developed to give the general public more accessible entry to the cryptocurrency market. Additionally, the USDC was created for both commercial and private use. Due to USDC’s provision of an open-source smart contract, other businesses are now free to develop their own blockchain-based services like wallets and exchanges.
What is USDT?
USDT is generally viewed as the first stablecoin, where USDT is the sign for Tether’s USD stablecoin (also known as Tether). When the article was written, USDT ranked third overall in market capitalization. It was introduced in 2014 as a digital token backed by fiat currency, with the USDT tied to the U.S. Dollar at a 1:1 ratio to assure price stability.
The initial goals of USDT were to address the problems of easing international currency transfers, provide a reliable Bitcoin alternative, and give users a checking method.
However, USDT is infamous for keeping its reserve information a secret. In contrast to Circle, Tether has struggled to operate with enough integrity and transparency. For example, one of the most significant security breaches in crypto history occurred at the Bitfinex exchange, which is closely associated with Tether.
Although they said in 2019 that each USDT is backed by a dollar in cash held by the corporation, Tether (the company) was fined $41 million by the U.S. Commodity Futures Trading Commission in 2021 (CFTC). This happened because Tether made false promises that their USDT Stablecoins are backed by actual fiat currency.
USDC (USD Coin) vs USDT (USD Tether):
One of the biggest issues with many popular cryptocurrencies is that they are difficult, if not impossible, to use for actual transactions, stablecoins addresses this issue. Many stablecoins can also be utilized as a useful currency within a cryptocurrency exchange thanks to their stability.
For instance, rather than converting Bitcoin to dollars or any other kinds of fiat, traders might trade it into a stablecoin like Tether. Stablecoins are more readily available than cash earned through the banking system, which is shut down during the weekend and after hours.
Additionally, stablecoins can be utilized with smart contracts, a type of electronic contract that automatically executes when all of its conditions are met.
The digital currency’s steadiness also aids in avoiding disputes that could develop when dealing with more volatile cryptocurrencies. Currently, the two most popular stablecoins are USDT and USDC.
Both USDC and USDT are stablecoins backed by the USD, although they do have different features. Here is a brief summary of the variations:
USDC is transparent about its reserves. USDT’s reserves are not transparent.
USDC has independent accounting firm audits. USDT doesn’t have audits done by an independent accounting firm.
USDC is available on Coinbase. USDT is not available on Coinbase.
USDC is a digital dollar backed by Coinbase and Circle. USDT is a digital dollar backed by Tether.
Is USDC more widely available than USDT?
Although USDT is more extensively available than USDC, USDC trading pairs are now also available on the majority of major exchanges and all DeFi exchanges. You shouldn’t see any availability concerns as long as you’re trading on a major exchange such as Binance, Kraken, Coinbase, Gemini, and Kucoin. As previously indicated, all DeFi exchanges would also have USDC-pairings because they often operate through liquidity pools.
Where is the Cheapest place to buy USDC or USDT?
For USDT, using tether’s official website is the cheapest option; otherwise, any exchange will do. The best location to buy USDC is Coinbase because they produce it themselves and charge no commission when converting dollars into USDC. Overall, it’s considerably simpler to purchase through Coinbase than directly through Tether, making USDC the most affordable and convenient route for most individuals to start using stablecoins.
Where does USDC or USDT have best liquidity?
When it comes to trading on Binance, USDT has much higher liquidity. However, for the majority of other exchanges, there is no longer a noticeable difference in liquidity between USDC and USDT trading pairs. That being said, when liquidity is there, USDC pairs have more than enough liquidity. Although USDT pairings have significantly greater liquidity on Binance than USDC does, even if you trade millions of dollars, you won’t encounter slippage with either coin. On the other hand, Coinbase offers more USDC liquidity than any other exchanges, you won’t also encounter any slippages if you trade large sums of USDC paired crypto on the platform.
Almost all cryptocurrency exchanges provide USDT, which has a larger trading volume and liquidity than USDC (largest worldwide trading volume). Only the majority of cryptocurrency exchanges provide USDC. Compared to USDC, which allows above-average trading pairs, USDT has a significantly bigger number of trading pairs across all crypto-asset classes.
Why are there Value fluctuations in USDC or USDT? How stable are they?
While in theory they shouldn’t change because they should always be priced at 1 US Dollar, in reality they do because of market conditions. However, since market makers, or whales, already do so, you don’t need to worry yourself about the swings since they often stay within 0.1 percent of the price of dollars. It is therefore not worthwhile to try to arbitrage the fluctuations or worry about the price when trading. The price fluctuations of stablecoins are negligible.
What gives more yield/interest USDC or USDT?
Even though interest rates fluctuate frequently, you will typically make more money by lending your stablecoins than you would by holding your money in a conventional savings account. In contrast to using a traditional bank, you will also have total choice over where you decide to invest your money. One tool where you may view the current APY on several coins is DeFi Rate. The top ten lenders here provide interest rates for lending USDC that range from 2 to 9 percent, with an average annual percentage yield (APY) of 4.4 percent each month. You may examine the most recent USDT loan rates using a variety of tools, like Staking Rewards. The average annual percentage yield (APY) is 150.58 percent, which is much higher than the USDC average.
Is USDT or USDC Safer stablecoin?
USDT and USDC are both centralized currencies created on the decentralized Ethereum blockchain, therefore they are virtually identical technologically. Nobody will be able to grab USDT more easily than USDC or vice versa by reaching into your crypto wallet or the exchange wallet. However, when it comes to the coins’ fundamentals, majority thinks USDC to be safer, though not by as much as USDT detractors would have you believe.
They make this claim because USDC is “produced” by one of the biggest cryptocurrency exchanges in the world — one that is publicly traded and regulated which boasts great security and profitability — and, more significantly, is routinely audited to assure its solvency. This involves audits of USDC to make sure they have enough deposits to support each coin currently in circulation.
The market for stablecoins has increased by 500% in the last 12 months. However, one of the biggest worries about stablecoins is the potential panic that would result from a rush of users trying to exchange their stablecoins for traditional currency only to discover that there isn’t enough liquidity and the risk this poses to the financial system.
When you consider their regulatory background and the transparency around their cash reserves, USDC and USDT start to set themselves apart. Due to frequent audits from reputable companies in the U.S., USDC has been the gold standard in transparency.
Tether (USDT), on the other hand, has a rocky past with authorities since, until recently, they were reluctant to offer transparent reports. In light of this, we firmly feel that USDC by Circle—as opposed to USDT—is the more secure stablecoin.
However, USDC is no insured by the Federal Deposit Insurance or FDIC. People feel that USDT intentionally prevented audits from happening in the past due to suspicious circumstances, and as a result, they assume that they are insolvent and lack sufficient USD reserves to cover all of the tokens they have issued.
They only have about 70% to 75% of the USD to cover the USDT coins they’ve issued, according to new facts provided by the only tether audit we’re aware of. Overall, given the history and transparency of both of these businesses, it is evident that USDC is a safer and wiser choice now that it is traded on the majority of cryptocurrency exchanges with ample liquidity.
Is USDT Unsafe to hold because it’s not fully backed by USD?
To guarantee the one-to-one exchange ratio to the currency or asset to which their prices are anchored, Tether asserts that the value of its stablecoins is always 100% supported by assets in its reserve. The reserve acts as a promise that if everyone wanted to convert USDT into fiat, they could. Same as to how a casino must have enough cash in its vault to cover every chip in play. Tether updates the asset value daily and provides a quarterly attestation, which is not the same as an audit, on its website that breaks down its reserves by asset classes.
In the crypto world, the reserve’s validity and openness have occasionally been questioned. Early in 2021, Tether only began to release reports on its holdings, and it still doesn’t include all of them and is not examined by an impartial auditor. The non-cash holdings, including what they are, how they are valued, and how simple it is for Tether to turn them into cash if stablecoin holders want to immediately redeem their initial investment, have drawn the greatest attention.
Is USDC Unsafe to hold because of not being FDIC insured?
Honestly, FDIC insurance is nothing more than feel-good worthless bragging rights normal US banks employ to give customers a false sense of security. The truth is, FDIC doesn’t have enough deposits to support banks in case of a bank run, let alone a collapse. USDC maybe not FDIC-insured, however, this would only be a problem if Coinbase went out of business, which shouldn’t happen given that they use cryptocurrency to hedge their dollar holdings, have low operating costs, and excellent security like cold storage for their cryptocurrency deposits, in addition to having expensive insurance to protect those in the event of theft or hacking. The US Dollar isn’t backed by anything, so it could lose value in respect to cryptocurrencies or other things that are somewhat “real”. But this is the nature of fiat currencies, which is ultimately why people ought to use cryptocurrencies to hedge their investment portfolios.
How do I know if USDC or USDT is right for me?
The choice between buying USD Coin (USDC) or Tether (USDT) will be based on individual requirements, tastes, and investment profiles.
Even though they are all pegged to the dollar, not all stablecoins are the same. For example, USDT is less appealing to keep due to Tether’s activities and hazy connection with exchanges. On the other hand, USDC offers comparable advantages to Tether without being linked to shady business practices or government investigations.
It’s difficult to state which stablecoin is superior to another when it comes to stablecoins. Really, it all depends on what you’re after.
USDC is probably your best option if you want to trade digital assets in large volumes and want to use a stablecoin that is supported by a regulated firm and is highly compliant. USDT is definitely your preferred stablecoin if you want high market acceptability and substantial liquidity.
Where to keep USDC or USDT?
Owning a stablecoin like USDT is a fantastic idea if you want to maintain your money in cryptocurrencies but prevent volatility. Users of cryptocurrencies also need to be aware of how the regulatory environment surrounding digital assets is changing. Transparency, as well as the availability of sufficient collateral and liquidity, are key factors in the development of Tether and other stablecoins. Regulators will definitely concentrate their attention on this area of the digital asset economy, with an emphasis on these aspects.
While there are a number of people who choose not to hold a lot of USDC, USDT, or any stablecoin for that matter, including decentralized ones like DAI, the ideal place to store such assets depends on the use you intend for them to serve. They must be on an exchange or connected to a defi wallet if you plan to use them for day trading so that you can execute trades immediately. There are better options if day trading isn’t why you’re keeping stablecoins, such as lending them out on interest-bearing platforms, which should provide you a yield of 8 to 15 percent yearly on stable-coin deposits and offer decent signup bonuses depending on your initial deposit.
Although there are many other stablecoins that you can use in 2022, such as USDT, USDC, actual Fiat, T-USD, GUSD, BUSD, Paxos USD, and many others, the two market leaders, USDC and USDT, are still the most popular and the best option because of the trading pairs’ high liquidity and simplicity of transfer between exchanges; virtually every exchange currently accepts both USDC and USDT, whereas only a small number support the other stablecoins currently. People who utilize USDC, that is supported by Coinbase, because it has been audited and is still being audited, think that it is much safer than USDT. In contrast, people are still unsure of whether Tether Ltd., the issuer of USDT, has enough dollars to back the USDT it has issued thus far. The choice is ultimately yours, but if you don’t feel secure using either, using traditional fiat may be a better option for you.