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USDT vs USDC: What is the Difference?

Welcome to this post, where we are going to see the main differences between USDT and USDC, and which is the best option.

To do this, we will highlight the most important information of each cryptocurrency separately, such as their risks and advantages. The most important thing in a stablecoin, as it is in these two cases, is that it maintains its price equivalent to $1 and there are guarantees that it will maintain this value.

The last thing you want when using a stablecoin is that it does not maintain its value and does not have enough cash to maintain this value. Since, each stablecoin must be backed by 1$ or some liquid financial asset, to give security to users to use that stablecoin instead of another. Therefore, let’s go over those aspects to look at, and to take into account in each one of them.

USDT

USDT or Tether is the top stablecoin with ranking 3 in market capitalization and most used at the moment. It is only recently, that strong competitors have started to appear in the top 10 being a stablecoin like USDC, but a year ago, USDT had a great dominance over the other stablecoins out there.

The company behind USDT is Tether Limited and that was long linked to Bitfinex, one of the leading cryptocurrency exchanges. The company is based in Hong Kong, and therefore does not have so many regulatory requirements as it is not in a country like the United States or European countries. We will discuss the aspects related to USDT and Bitfinex later on.

Treasury

USDT’s treasury can be found on their website, at transparency. Here you can find all the information, and external audits on their balance sheets, the amount of USDT circulating and the amount of reserves they have. 84.25% is cash and cash equivalents and other short-term deposits and commercial paper, 5.22% in corporate bonds, funds and precious metals, 4.99% in secured loans and 5.54% in other investments.

Regarding the 84.25% of cash and cash equivalents, we have 52.51% in commercial paper, 33.35% in treasury bills, 12.42% in cash and bank deposits and 1.72% in money market funds.

You can find the balance in each network of its stablecoins, in addition to USDT, EURT, CNHT and XAUT. The % that have been commented is at the time of writing this article and may vary, so I recommend you also consult that section to learn more in detail the treasury that backs USDT.

USDT Supply

Another relevant aspect is the growth of the USDT supply, where we can see the market capitalization to know how many USDT are in circulation. If there are 78 billion (American), it means that there must be support for those 78 billion USDT in circulation. What is interesting is to see the market capitalization and its evolution, to see if it has a very fast growth and there is a large supply of USDT, to see if there is backing or they have just created more USDT without a real backing. So seeing if there is an increase in their supply is also a factor to look at.

Advantages

Let’s take a look at the main advantages it can present and the risks USDT has as stablecoins if we can compare it with others, so you can get a better idea of its strengths and weaknesses. Starting with the good.

One of its main advantages is that it has been around since 2014, and is still the leader in the stablecoins market. Being used in all centralized exchanges to buy other cryptocurrencies. So it has a great importance in the entire cryptocurrency market, both in liquidity and in its use in different functions, either centrally in exchanges or decentralized.

Another positive aspect is the great liquidity that you find in many different networks, being the stablecoin that is available in more networks and you will be able to use.

For the time being, despite having many news and doubts that we will now comment, it has not failed and has continued to grow its USDT offer and use throughout the world of cryptocurrencies, despite raising many doubts. So, historically, it has more run than any other stablecoin, and with a volume of daily and total use, much higher. Which is also an advantage, knowing how to keep its price linked to the dollar with so much market capitalization, and so much liquidity of the token spread across different networks and platforms.

Risks

Let’s go with the aspects that pose a risk to USDT and that may create certain doubts in using this stablecoin with respect to others.

The first is the controversial case of bitfinex and USDT, where there are many accusations that USDT was created out of nothing to cover a hole in the Bitfinex Exchange, and that USDT was used to inflate the price of Bitcoin. We won’t go into too much detail, but if you have more interest, I recommend watching news regarding this topic.

The other negative aspect is the lack of transparency. Despite being audited, being a company in a country with few regulatory requirements, there are many doubts about the company that has audited tether and if they really have the support they claim to have. Since they have not authorized U.S. government entities to review it or use another auditing company, and this creates several doubts as to whether the support is real.

Regarding the backing, a large part is in promissory notes or commercial papers, and this creates doubts because it is unknown which companies have the promissory notes or commercial papers backing USDT as part of the treasury. And IOUs or commercial paper account for 44.5% of the total reserves held by tether.

Another disadvantage that we have been able to see in some of the sharp falls, is that it does not hold the peg or its equivalent value to the dollar as perhaps other stablecoins. Seeing USDT with a price of 0.95 at the lowest moments, although later with a great fast recovery. Although it is at times of high volume and very large declines, the fact that it falls as much as 4-5% and other stablecoins hold up better is also a risk to consider if there are again sharp declines and if USDT will be able to maintain its peg to the dollar.

USDC

USDC or USD Coin has had a great growth in the last year, becoming an increasingly used stablecoin and entering the top 10 cryptocurrencies by market capitalization. It is the second most used stablecoin after tether and with a great growth in the last year alone.

The company behind USDC is circle, which works in collaboration and jointly with Coinbase. It is the first American company to have a stablecoin, as well as its own exchange to buy and sell cryptocurrencies.

This has been one of the main reasons why it has had so much success and growth, being an American company regulated and supervised by public institutions such as the SEC. This gives much more confidence than other stablecoins without such a demanding supervision.

Treasury

The company’s treasury can be found on a monthly basis in its reports, which are audited by the world’s leading audit firms. Grant Thornton is the company that issues the treasury reports every month.

You can see it in a public way and really very easy, if you go to their circle page, and go to usd coin. If you scroll down on their website, you will see a section with the name Financial & operational transparency and below it all the documents, from 2018 until now. It’s as simple as clicking on it and you can see a report from the auditor, with the amount of USDC in circulation at that moment and the amount that there is as collateral in the circle treasury backing that stablecoin.

In these reports there is not a very precise separation of the treasury, but you can find more detailed information regarding circle and USDC at the SEC with all the reports they have made regarding this stablecoin.

USDC Supply

Another relevant aspect is the growth of the USDC supply, where we can see the market capitalization to know how many USDT are in circulation. If there are 50 billion(American), it means that there must be backing for those 50 billion USDC in circulation. What is interesting is to see the market capitalization and its evolution, to see if it has a very fast growth and there is a large supply of USDC, to see if there is backing or they have just created more USDC without a real backing. So seeing if there is an increase in their supply is also a factor to look at.

Advantages

Let’s take a look at the main advantages it can present and the risks USDC has as stablecoins, so you can get a better idea of its strengths and weaknesses. Starting with the good.

The main advantage is the very strong regulation it has and guarantees regarding its treasury. Since it is the first stablecoin with American regulation and so supervised by institutions such as the SEC, and renowned auditors, with monthly audits and reports of their balance sheets. This for the investor, gives much more security knowing that it is a company with funds and treasury that support the amount of USDC in circulation, and that there are guarantees of its value.

The other advantage is the integration with platforms and banks in America and other countries. Being such a supervised stablecoin, we can start to see it being used and integrated into Fintech companies such as banks to offer better options to their customers. In addition to being used more and more than others in American exchanges and platforms.

Risks

Let’s go with the aspects that pose a risk for USDC and that may create certain doubts in using this stablecoin with respect to others.

The main risk is the short time it has been around, if we compare it with USDT. Having appeared in 2018 and not having a really significant volume until a year ago. So, being a newer stablecoin, it remains to be seen how it acts and behaves in times of uncertainty or large market declines.

Another big risk is the centralization and control that USDC has compared to other stablecoins. Being so regulated and guarded by a company, it generates distrust in case the U.S. government or the company itself wants to control or limit any aspect related to USDC. Although regulation is a positive aspect due to its guarantees in aspects such as treasury, they also go against many of the principles that the world of cryptocurrencies has, which seek to avoid the control and power of the states.

Another disadvantage that we have been able to see in some of the sharp falls, is that it does not maintain the peg or its equivalent value to the dollar as perhaps other stablecoins. Seeing USDC with a price of 0.96 in the lowest moments, although later with a great fast recovery. Although it is at times of high volume and very large drops, the fact that it falls as much as 4% and other stablecoins hold up better is also a risk to consider if there are again sharp drops and if USDC will be able to maintain its peg to the dollar.

Summary

To conclude, let’s summarize the strengths and weaknesses of each one so that you can make your choice. Keep in mind that, in a stablecoin, what is most important and relevant is that it maintains its price at 1$, and that it has treasury in case something happens, to be able to recover your USDT or USDC in dollars.

USDC has the strongest regulation and treasury, so if you are looking for a stablecoin with guarantees, this is the best option.

Regarding their value linked to the dollar, they have had a very similar behavior, falling 4-5% with a price of 0.96 in sharp drops, but recovering very quickly.

If you are looking for a stablecoin with a past and track record, then USDT is the one that has been leading the market for the longest time and being the No. 1, with some doubts about its transparency and treasury, but for the moment maintaining its value.

And finally, if you are looking for a decentralized stablecoin or as less controlled as possible, USDT despite having a company behind it, has no governments or public entities that can control the stablecoins. Although there is still a single company behind it.

I hope it has helped you to know in more detail how USDT and USDC work and all the backing and information behind each one. Remember, if you don’t have an account with binance, you can create one just below.

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