Fiat-backed stablecoins play a vital role in the cryptocurrency market, allowing every type of participant to hedge against the volatility of cryptocurrencies, make crypto payments denominated in fiat, and more.
With multi-billion-dollar market capitalizations, USD Coin (USDC) and Tether USDT have consolidated their positions as the leading stablecoins, firmly entrenching themselves in nearly every major cryptocurrency exchange, wallet, and application.
If you’re considering which stablecoin is a better fit for your needs, it helps to understand the differences in how they operate.
What is Tether USDT?
Issued by Hong Kong-based Tether Limited, Tether (USDT) is by orders of magnitude the largest stablecoin by market capitalization and the most traded. As of 7 April 2021, USDT’s market cap is over $40 billion, and with a daily trading volume of $143 billion — USDT is the most liquid (traded) cryptocurrency in the world.
USDT was first issued in 2014, and with hundreds of cryptocurrency trading pairs being listed against USDT, the coin quickly gained something of a first-mover advantage in the stablecoin market. Today, the coin circulates on seven different blockchains including Ethereum, Tron, and Bitcoin Cash.
Because of its immense trading volumes and broad support, USDT is ideal for traders that want to take advantage of price swings by swiftly moving between crypto and fiat. The ubiquity of USDT in crypto wallets and applications also makes it ideal as a vehicle for payments, offering a permissionless way for anyone to send crypto-dollars anywhere, for a fraction of the cost of a traditional wire transfer.
What is USD Coin (USDC)?
USD Coin (USDC) was launched in 2018 as a joint venture between Circle and Coinbase, two US-based cryptocurrency infrastructure providers. With a market cap of just over $10 billion, USDC is the second-largest stablecoin and is widely seen as a more institution-oriented solution due to its compliance efforts.
USDC aims to hold a verifiable 1:1 peg to the US dollar, and publishes monthly audits of its reserve bank accounts as proof of the coin’s solvency. The transparency of this process is pushed as one of USDC’s key selling points, along with the fact that the coin is not actually issued by Coinbase and Circle — it is issued by third-party, regulated, US financial institutions.
What are the differences between USDT and USDC?
The ubiquity and liquidity of USDT make the coin undeniably useful for trading and payments, and to date it has not broken its peg to the US dollar. While USDT may be the largest and most liquid stablecoin, it has dealt with number of controversies over the years, however — in particular, doubts have been voiced over whether USDT is in fact fully backed 1:1 by US dollars as its issuer claims. These issues may have, in part, prevented institutions from adopting USDT as a medium of exchange.
USDC, in comparison, is more commonly used by US-based institutions for billing purposes and settling payments, most likely due to the regulatory-friendly approach its parent companies have taken. In March 2021, Visa announced it would support USDC as a settlement medium on its global payment processing network, a major milestone for institutional adoption.