USDT vs USDC

Which stablecoin is the best USDT vs USDC? Tether is better for trading, and USDC is better for invoices. You can buy both on Binance (or Binance.US for U.S. investors), Crypto.com

Tether (USDT) and USD Coin (USDC) reign supreme as the top stablecoins, commanding the digital currency landscape. Whether you frequent a popular crypto exchange or not, chances are these two coins are at your fingertips. But how do they measure up against traditional fiat currencies and other virtual assets? Together, they boast an impressive market capitalization of over $120 billion, with Tether leading the pack with over $70 billion and USDC not far behind with over $50 billion.

The stability of stablecoins has recently been called into question with the collapse of TerraUSD (UST), pause of BinanceUSD (BUSD), and temporary de-pegging of USDC. As a result, users are seeking a reliable stablecoin without the need to constantly question its peg. While you may be tempted to incorporate these financial instruments into your portfolio, the question remains: at what expense?

What Is a Stablecoin?

Decentralized finance (DeFi) is a rapidly evolving and highly innovative space supporting a censorship-free, more efficient decentralized system. In short, there are no financial institutions calling the shots. Tools such as stablecoins help relieve some of the obscurity and support the steep learning curve DeFi can have. 

Stablecoins are cryptocurrencies that keep their value steady by linking to assets like the U.S. dollar or gold. They combine crypto with real-world assets.

Stablecoins fall into one of three categories: fiat-backed, crypto-backed, commodity-backed and algorithmic stablecoins. 

Fiat-backed stablecoins

USDC and Tether, as popular fiat-collateralized stablecoins, hold a 1:1 redeemable value with the U.S. dollar. Their off-chain collateralization predominantly consists of cash or short-term bonds, offering unparalleled stability in contrast to the inherent volatility of other cryptocurrencies. With only minimal price fluctuations, these stablecoins boast an easily comprehensible tokenomics structure, thanks to their straightforward fiat-backed foundation, making them accessible to a wide audience.

Crypto-backed stablecoins

DAI stands as the leading crypto-backed stablecoin, utilizing an ingenious approach to maintain stability. By leveraging MakerDAO's collateralized debt position (CDP), DAI ensures financing through crypto collateralization on the blockchain. As the name implies, crypto-collateralized stablecoins rely on another cryptocurrency as collateral support.

Avoiding centralized authorities, these stablecoins harness the power of smart contracts and on-chain processes. Smart contracts are self-executing agreements that enforce the terms of a contract directly on the blockchain. When acquiring a stablecoin like DAI, you commit your cryptocurrency to the blockchain network's smart contracts, which, in turn, dispense tokens of equal value. This decentralized mechanism ensures a trustless, secure, and transparent exchange, all while maintaining the stablecoin's value.

Commodity-backed stablecoins

Commodity-backed stablecoins, unlike their dollar-pegged counterparts, derive value from the underlying commodities they represent. Essentially, they are blockchain tokens backed by commodity reserves held by a central entity. While less prominent, PAX Gold and Tether Gold are notable examples, with each coin mirroring the value of an ounce of gold.

Algorithmic stablecoins stablecoins

Two prominent examples of algorithmic stablecoins are Magic Internet Money (MIM) and TerraUSD (UST). While MIM retains its dollar peg, UST has lost its peg to the U.S. dollar. MIM is backed by interest-bearing tokens (ibTKNS) within the Abracadabra protocol.

Algorithmic stablecoins maintain their peg through various methods, including rebase algo coins, seigniorage algo coins, and fractional algo coins. However, these mechanisms are subject to potential risks, as they rely on complex algorithms to maintain stability. Market conditions or unforeseen events can disrupt the delicate balance, leading to potential losses and undermining the stablecoin's value.

Why Do People Use Stablecoins?

Stablecoins ingeniously bridge the gap between traditional finance and the DeFi realm. Their easily comprehensible nature, coupled with their capacity to harness yield aggregation and versatile applications, make them a compelling component of the ever-evolving DeFi landscape.

You can benefit in various ways from owning USDC. Through lending USDC to other crypto traders, you may earn residual income and potentially earn interest. In getting a return on USDC, you accept a risk from potential borrower default.

The ultimate purpose of USDC is to assist companies and people in transferring cash in a faster and more cost-effective manner by removing the need for conventional financial intermediaries and offering a stable cryptocurrency in a less regulated space.

USDT vs USDC: What is Tether?

Tether is a fiat-backed stablecoin that allows users to trade with other cryptocurrencies while avoiding market volatility. Tether is minted on the Ethereum network and Tether tokens are pegged to the U.S. dollar at a 1:1 ratio.

Many detractors have questioned Tether's assertion that its USD currency assets are adequate to support all the released USDT coins on a one-to-one accord. Many opponents claim Tether has released more USDT coins than its reserve contains in dollars. They further say that the Tether executive team has been jacking up the value of Bitcoin by printing more Tether.

During adversary UST’s nosedive in price, USDT also broke below $1. It maintained its peg, but skepticism remains that it could have faced similar problems if the selloff had been larger. 

UDST does seem safe in the grand scheme of things, but it has controversies. It has faced antitrust accusations of creating Tether and selling it to its sister exchange Bitfinex. 

Most people in the space assume the backing behind Tether is substantial and safe, especially given the transaction fees related to the platform.

Features of Tether

Tether achieves its stability through its cash reserves. It has the highest market capitalization of all stablecoins and consequently has the highest volume. Tether is not decentralized; it is owned by iFinex.  

Tether is interoperable and is traded on most all blockchain networks. Tether does not have a native network and is hugely accessible on most centralized and decentralized exchanges. 

How to Buy Tether (USDT)

You’d have a tough time finding an exchange that doesn’t offer Tether. Centralized exchanges like Crypto.com, Coinmama and Uphold offer Tether and have simple user interfaces to navigate your purchase. 

USDT vs USDC: What is USD Coin?

USD Coin (USDC) is a newer stablecoin that is tied to the U.S. dollar. It was released on Sept. 26, 2018, as a result of a partnership involving Circle and Coinbase Global Inc. (NASDAQ: COIN). 

USDC is a USD-backed cryptocurrency and, in essence, is a service that tokenizes U.S. dollars and allows them to be used on public blockchains. Furthermore, USDC coins can be converted to USD. USDC uses cash and short-term U.S. Treasury securities (bonds) to serve as security for the USD Coin. The project retains $1 in collateral for every USDC token under issuance. The ERC-20 smart contract ensures the issuance and exchange of USDC coins.

USDC basically has not deviated substantially from its peg and is extremely transparent with its financials. It has a page dedicated to transparency that shows all of its audits from Grant Thornton LLP.

Features of USD Coin

USDC achieves its stability through its cash reserves. It has the second highest market capitalization of all stablecoins and consequently has the second highest volume. USDC is not decentralized; it is owned by Coinbase and Circle.  

USDC is interoperable and is traded on most all blockchain networks. Similar to Tether, USDC does not have a native network and is accessible on most centralized and decentralized exchanges.

How to Buy USD Coin (USDC)

USDC is offered virtually everywhere. Centralized exchanges that offer Tether include Coinbase, eToro and Gemini. Your purchase shouldn’t stay on these exchanges though if you’re going to interact with blockchain networks. 

For instance, once purchasing on Coinbase, sending to a MetaMask wallet may be necessary to earn interest for providing liquidity.

USDT vs USDC: Which Stablecoin is Best?

USDC and USDT are both relatively secure, with USDC's regular audits instilling greater confidence in its safety. These audits foster a consensus within the crypto community regarding its reliability. Despite offering similar interest yields for liquidity-providing protocols, these stablecoins can be considered nearly interchangeable for most applications.

However, the recent depegging of UST has raised concerns about the stability of a stablecoin's peg, even for those like USDC and USDT, which are considered the safest options. Centralized stablecoins are not without risks, as demonstrated by USDC's recent depegging. For decentralization enthusiasts seeking alternatives to stablecoins backed by centralized entities, MIM offers an appealing option.