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USDC vs USDT: What's the difference?

Written by
Pavel Sazanov
Updated on
November 23, 2023
7 min read

USDC vs USDT

USDC (USD Coin) and USDT (Tether) are stablecoins. A stablecoin is a crypto asset designed to maintain a stable value relative to a specific asset or currency, in this case, the U.S. dollar.

While they both serve the same fundamental purpose, there is a key difference. USDC is issued by Centre Consortium and is valued for its transparency, whereas USDT is issued by Tether Limited and is preferred for its liquidity and higher trading volume.

In this article, we will take a look at these differences in more detail and help you figure out which stablecoin may be better suited for your needs.

What are stablecoins?

Stablecoins are digital assets designed to maintain a stable value by pegging their price to a specific asset or currency, often a fiat currency like the U.S. dollar. The primary objective of stablecoins is to provide users with the benefits of cryptocurrencies, such as fast and borderless transactions, while minimizing the risk associated with price fluctuations.

Unlike traditional cryptocurrencies like Bitcoin or  Ethereum, stablecoins seek to bridge the gap between digital and traditional financial systems and combine the benefits of fiat currencies and digital assets. They aim to address some of the key challenges faced by the crypto industry, such as price volatility and lack of widespread acceptance. By maintaining a stable value, stablecoins offer a more reliable medium of exchange, store of value, and unit of account.

Are stablecoins the same as fiat currencies?

Stablecoins differ from fiat in a few key ways. First and foremost, stablecoins are digital assets that exist solely in the digital realm, while fiat currency is physical cash issued by a central bank. Secondly, stablecoins are typically backed by a reserve asset, such as a specific fiat currency or a commodity, aiming to maintain a stable value compared to the asset it is pegged to. In contrast, fiat currency's value is determined by the trust and confidence placed in the issuing central bank. Stablecoins also offer the advantage of being easily transmissible and tradable on blockchain networks, providing instant and low-cost transactions across borders, whereas fiat currency transfers can be slower and more costly, especially for international transactions. Additionally, while fiat currency is subject to the monetary policies implemented by central banks, stablecoins are not subject to such influence, increasing their appeal as a decentralized alternative.

What types of stablecoins exist?

Stablecoins can be categorized into three main types: fiat-backed, crypto-backed, and algorithmic. Fiat-backed stablecoins derive their value from a reserve of fiat currency held by a trusted third-party custodian. Each unit of the stablecoin is backed by an equivalent amount of the underlying reserve currency. Crypto-backed stablecoins, on the other hand, are collateralized by a reserve of other cryptocurrencies, typically held in smart contracts. Lastly, algorithmic stablecoins rely on complex algorithms to adjust the supply and demand of the stablecoin in response to market fluctuations, striving to maintain a peg to the target asset or currency.

The growing popularity of stablecoins is driven by their potential for use cases such as remittances, international payments, and decentralized finance (DeFi) applications. They offer a middle ground between fiat currencies and cryptocurrencies, combining the benefits of both worlds. As the cryptocurrency ecosystem continues to evolve, the stablecoin market is likely to play a pivotal role in fostering mainstream adoption and building a bridge between traditional finance and the decentralized future.

What is USD Coin (USDC)?

USD Coin or USDC is a stablecoin that was launched in 2018 as a joint effort between Coinbase and Circle, two prominent players in the cryptocurrency industry. The primary objective of USDC is to provide users with a stablecoin pegged to the U.S. dollar, allowing them to transact and store value without being exposed to the price fluctuations commonly associated with other cryptocurrencies.

Circle executives
Executives of Circle. Source: circle.com

USDC started on the Ethereum blockchain as an ERC-20 token, which means it is built on a widely adopted and established platform. This makes USDC compatible with many decentralized finance protocols and wallets, offering users a seamless experience and easy integration into various platforms. Eventually, USDC branched out to other blockchain networks.

One of the key factors that differentiates USDC is its commitment to transparency and regulatory compliance. Unlike some other stablecoins, USDC maintains a fully reserved structure, where each token is backed by an equivalent amount of U.S. dollars held in a bank account and frequently audited by reputable third-party firms. This ensures that there is a direct correlation between the number of USDC tokens in circulation and the amount of U.S. dollars in reserve and the price remains fixed.

USDC has gained widespread adoption and usage across the crypto ecosystem. It is frequently utilized for cryptocurrency exchange, as well as for remittances, peer-to-peer transactions, and as a means of storing value in stable assets. As a regulated and fully backed stablecoin, USDC offers users the benefits of cryptocurrencies, such as speed, security, and global accessibility, while minimizing exposure to volatility.

What is Tether (USDT)?

Tether (USDT) was launched in 2014, it was one of the first stablecoins to enter the market. Created by the company Tether Limited, a Hong Kong-registered company, USDT was designed to provide stability and liquidity by pegging its value to the U.S. dollar at a 1:1 ratio. This means that for every USDT token in circulation, there should be an equivalent amount of U.S. dollars held in reserve.

USDT operates on multiple blockchain platforms, including Ethereum, Tron, and others. This allows for greater accessibility and interoperability across different networks and platforms. The multi-platform approach also enables faster transactions and lower fees, making USDT a popular choice for traders, investors, and users in the cryptocurrency ecosystem.

One of the distinguishing features of USDT is its high liquidity and broad acceptance. It is supported by numerous cryptocurrency exchanges and used as a base trading pair for a wide range of major exchanges. This widespread adoption and availability contribute to USDT's stability and reliability as a medium of exchange and store of value.

However, it is important to note that USDT has faced scrutiny and controversy over the years regarding its transparency and level of backing. While Tether Limited claims that every USDT token is fully backed by an equivalent amount of U.S. dollars in reserve, there have been concerns raised about the company's ability to provide proper audits and transparency into its reserves. This has led to speculation and debates about whether USDT's backing is indeed as secure as claimed.

Tether Flow of Funds infographic.

Tether Flow of Funds infographic. Source: Tether whitepaper.

Despite the controversies, USDT continues to play a significant role in the cryptocurrency market, providing users with a stable and widely accepted digital asset that bridges the gap between traditional finance and the world of cryptocurrencies.

USDC vs USDT: similarities

As mentioned above, both USDC and USDT stablecoins are designed to provide stability and reliability in the cryptocurrency market. They share several similarities in terms of their purpose and use cases.

Firstly, both USDC and USDT are pegged to the value of the U.S. dollar. This means that the value of each token is meant to remain stable and equivalent to one U.S. dollar. This pegging mechanism allows users to transact and store value in a digital asset that represents a fiat currency without being exposed to the volatility commonly associated with other crypto assets.

Both USDC and USDT tokens are widely accepted and used across various crypto exchanges and trading platforms. They are commonly utilized as a base pair for trading with other cryptocurrencies and as a means of storing value during market fluctuations. The widespread adoption of both stablecoins contributes to their liquidity and utility in the cryptocurrency market.

USDC vs USDT: differences

Despite the numerous similarities in terms of their purpose and use cases, USDC and USDT also have significant differences between the two.

One key aspect of the "USDT vs USDC" debate lies in their issuing entities and level of transparency. USDC is issued by Coinbase and Circle (both are part of Centre Consortium) and follows a fully reserved model, where each token is backed 1:1 by an equivalent amount of U.S. dollars held in reserve. This transparent approach ensures that there is a direct correlation between the number of USDC tokens in circulation and the underlying fiat currency.

On the other hand, USDT is issued by Tether Limited and has faced scrutiny regarding its reserves and transparency. While USDT claims to be backed 1:1 by U.S. dollars, there has been controversy around the level of backing and the lack of transparency regarding audits.

Another significant difference is the blockchain platforms they operate on.

USDC started off on the Ethereum blockchain as an ERC-20 token, but eventually branched out to other blockchains, like ALGO, ARB, SOL, and others. USDT also exists on multiple blockchain networks. Supported blockchains for USDT are Bitcoin (Omni & Liquid protocol), Ethereum, TRON, EOS, Algorand, Solana, and Bitcoin Cash (SLP). This difference in blockchain platforms may impact factors such as transaction speed and network fees.

A list of USDC supported blockchains
Full list of blockchain networks that support USDC. Source: circle.com

Furthermore, while both stablecoins enjoy widespread adoption and usage in the cryptocurrency ecosystem, USDT has a longer history and a higher trading volume, making it more widely accepted and available on numerous cryptocurrency exchanges.

USDC vs USDT: Challenges

USD coin depegged

Despite USD Coin's generally positive reputation on the stablecoin market, it is not immune to risks and challenges. In particular, during the collapse of Silicon Valley Bank, which held more than $3 billion worth of USD Coin, the stablecoin faced significant pressure and temporarily deviated from its peg. Its value dropped as low as $0.86, causing concerns among users and market participants.

The bank collapses also affected Signature Bank, leading to the closure of its product Signet, which facilitated the redemption of USDC stablecoins for the US dollar. This event further raised doubts about the resilience of both Circle, the company behind USD Coin, and the stablecoin itself in times of crisis.

Fortunately, USD Coin managed to navigate through this challenging period and subsequently regained its peg. The stablecoin's value recovered shortly after the initial deviation, demonstrating its ability to withstand market turbulence and restore stability.

The mystery of the USDT stablecoins' reserves

On the other hand, the USDT ecosystem has also faced considerable controversy and scrutiny since its inception. Concerns have been raised regarding the extent to which reserves of fiat currencies adequately back the circulating supply of USDT tokens in the market.

The situation escalated when financial regulators and law enforcement investigated Tether, leading to the discovery that its reserves were insufficient. It was revealed that corporate loans and bad debt were utilized to support their backing reserves. Additionally, Tether's sister company, Bitfinex, was involved in the misplacement of $850 million worth of client and corporate funds, and Tether's reserves were utilized to cover up this imbalance. These actions were carried out without informing Tether's investors. In 2021, Tether faced consequences for its actions and paid an $18 million fine.

These instances provide only a glimpse of Tether's complicated history. However, it's worth noting that the stablecoin giant appears to have taken steps toward greater transparency. Tether has increased its commitment to transparency and now offers daily updates on the status of its reserves. This enhanced transparency aims to build trust and provide stakeholders with a clearer understanding of Tether's operations.

USDC vs USDT: What's the better investment?

Atomic Wallet will not provide financial or investment advice. The answer will always depend on what type of investor you are and your preferences when it comes to potential risks and goals.

Market cap and DeFi

Both USDT and USDC are both popular stablecoins of course, but Tether is currently the largest stablecoin in terms of market capitalization and daily trading volume. Its widespread acceptance and use in the cryptocurrency ecosystem make it a popular choice for investors.

USDT has also been in circulation since 2014 and has maintained its peg to the US dollar throughout that time. The stablecoin has demonstrated stability and reliability in maintaining its value, even during volatile periods in the crypto market.

When it comes to the popularity of USDT in the crypto space, Tether is widely supported by cryptocurrency exchanges and trading platforms. Its availability across various exchanges ensures that investors can easily buy, sell, and trade USDT without facing significant hurdles. This accessibility further enhances its liquidity and makes it a preferred option for traders and investors.

Since USDT is present on a bigger number of blockchain networks, it's utilized in decentralized finance protocols, lending platforms, and as collateral for borrowing, providing opportunities for investors to participate in these emerging markets.

Regulatory transparency and stability

USD Coin (USDC) is issued by Circle and Coinbase, two well-established and regulated platforms in the cryptocurrency industry. This collaboration and support from reputable organizations signify the widespread acceptance of USDC within the crypto community. Circle, Coinbase, and other prominent industry players that are owned by Centre Consortium are compliant with regulatory requirements, making USDC a more transparent option compared to other USD stablecoins. Regular audits and transparent reserve reports enhance trust and provide investors with a sense of security.

USD Coin is started off as an ERC-20 token on Ethereum blockchain which offers some technical advantages to USDC stablecoin. These include its robust infrastructure, network effect, and smart contract capabilities. Ethereum is one of the most widely adopted blockchain platforms, with a vast ecosystem of decentralized applications (DApps) and DeFi protocols. By using USDC on the Ethereum network, investors can take advantage of the diverse opportunities available within this vibrant ecosystem. It is also worth remembering that

Buy USD stablecoins in Atomic Wallet

If you decided to invest in USDT, USDC, or any other USD-backed token, we've got good news for you. Atomic Wallet allows you to purchase crypto assets with fiat currency and keep them in your USDT wallet & USDC wallet in a fully decentralized manner without any additional charges while also earning cashback! You can also send crypto dollars in and out of your wallet without any additional charges.

Atomic Wallet 'Buy Crypto' tab

If you decide to proceed with this option, you will be required to provide certain information, including your name and billing details. Additionally, you will need to complete a verification process, which is conducted by our trusted partners in order to ensure the prevention of fraud and money laundering. Payments can be made using either a debit card or a credit card.

In summary

At the end of the day, both USDT and USDC offer unique advantages and reasons for investment. USDT's market dominance and widespread acceptance make it a preferred choice for traders, while USDC's regulatory transparency and collaboration with major industry players provide a sense of security for investors. Ultimately, the decision to invest in either stablecoin depends on individual preferences, risk appetite, and investment goals.

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