USDT vs USDC: A Look at the Leading Stablecoins

Stablecoins have become a major part of the cryptocurrency space over time, with Tether USD (USDT) and USD Coin (USDC) now being the two leading stablecoins by market capitalization. While both are fully collateralized stablecoins, their underlying business models and infrastructure differ.

Looking at the differences between USDT and USDC is crucial for investors to decide which stablecoin they feel more comfortable with, and which they prefer to hold during periods in which they choose to sit on the sidelines.

During periods of heightened volatility, cryptocurrency investors have been known to move away from BTC and into stablecoins as cryptocurrency prices plunge. In June 2022, for example, CryptoCompare’s Exchange Review showed that after BTC lost 37.4% of its value in one month, Bitcoin spot trading into stablecoins rose last month as investors remained cautious.

What is Tether USD (USDT)?

As of July 2022 Tether USD (USDT) remains the largest stablecoin with a market capitalization of over $65 billion and dominates over 50% of the stablecoin market. It’s the most popular trading base pair for almost all crypto tokens and coins in crypto exchanges.

USDT has a 1:1 peg with the US dollar and is allegedly backed by a wide array of collateral reserves, including cash, commercial paper and commodities. The rationale behind this is to safeguard investors from volatility: in case of massive USDT liquidations, Tether can rely on those reserves to defend the peg with the US dollar.

History Behind USDT

Ifinex Inc —a Hong Kong-based company founded in 2014— is the owner of Tether Limited, the company in charge of issuing USDT. Like many other stablecoins, USDT was designed to bridge the gap between fiat and cryptocurrencies, allowing users to exchange their crypto for a stable currency such as USD.

USDT was originally an ERC-20 token on the Ethereum network, but it’s now compatible with other networks such as TRON and the BNB Chain. There’s also a Euro-pegged version of Tether (USDT-EUR) and two soon-to-be-released sterling-pegged and Mexican Peso-pegged versions of USDT.

Tether has also launched a gold-backed stablecoin called Tether Gold (XAUT). XAUT is backed 1:1 by physical gold, with each token representing “ownership of one troy fine ounce of physical gold on a specific gold bar” held in a Swiss vault.

Tether frequently updates its USDT reserves holdings on its website. On June 22, Tether’s chief technology officer Paolo Ardoino said the firm is “open to providing more information” about USDT and the current status of the company, the reason why Tether will soon undergo an audit from a “top-12 accounting firm” though the exact date is unknown.

USDT wasn’t the first stablecoin as many people believe —it was one of the early ones in the crypto space, launched as RealCoin in July 2014 and later rebranded to Tether in November of that year.

USDT plunged to $0.95 on May 13, shortly after the Terraform Labs collapse. A day after it was trading at $1 again. Tether said they were able to process $3 billion in withdrawals, calming investors’ fear of Terra-like depeg.

Tether Controversies

Tether didn’t become the behemoth that it’s today without controversies. Here’s a quick rundown of the stablecoin issuer most popular controversies:

  • November 2017: a hacker steals $31million worth of USDT tokens on the Tether platform, leading to a hard fork shortly after the incident. At the time, critics and detractors were already slamming Tether for its lack of communication of its reserves, and federal investigations would follow.
  • January 2018: Tether hires an accounting firm to perform an audit but soon dismisses it. Tether soon developed premiums for BTC/USDT as investors feared an USDT collapse.
  • October 2021: The company had to pay the Commodity Futures Trading Commission (CFTC) a $41 million fine due to “misleading statements and omissions” about its collateral reserves.
  • July 2021: The US Department of Justice accused Tether executives of alleged bank fraud.

What is USD Coin (USDC)?

USD Coin (USDC) is the second-largest stablecoin by market capitalization, with over $54 billion as of July 2022. Centre —a consortium co-founded by Circle, Coinbase and other FinTech companies— is the issuer of USDC. Besides Ethereum, USDC is also compatible with other cryptocurrency networks, including Solana, TRON, BNB Chain, Stellar and Algorand.

Each USDC is pegged 1:1 with the US dollar and backed by cash and dollar-equivalent assets. These assets are held in different accounts with U.S. financial institutions, and Grant Thronton International, a major auditing firm oversees these assets.

Circle is a financial technology company that founded Centre, a consortium composed of other notable crypto companies in the industry including crypto exchange Coinbase and BTC mining company Bitmain.

USDT vs. USDC: What Are Statistics Saying?