homecryptocurrency NewsUSD Coin vs Tether: A quick comparison of the top two stablecoins in the market

USD Coin vs Tether: A quick comparison of the top two stablecoins in the market

USD Coin vs Tether: A quick comparison of the top two stablecoins in the market
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By CNBCTV18.com Mar 17, 2023 5:30:14 PM IST (Published)

Stablecoins are tied to the value of real-world assets, such as a fiat currency. This ensures that their prices generally remain fixed. Therefore, even though they are cryptocurrencies, stablecoins are usually immune to price fluctuations. This makes them highly suitable for common transactions and trading activities.

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These properties have driven the demand for stablecoins to new heights. As such, hundreds of stablecoins have cropped up over the last few years, resulting in a combined market capitalisation of more than $133.74 billion. However, two projects alone account for more than $110 billion of the stablecoin market cap, they are Tether (USDT) and USD Coin (USDC).
USDT and USDC have emerged as the leading stablecoins in the market. They are leagues ahead of the other players in the space in terms of adoption, usage and market share. But what are these stablecoins, and how do they differ from each other? Tag along to find out.
Understanding USDT and USDC and how they work
Both USDT and USDC are pegged to the value of the U.S. dollar. This means that the value of one USDT or USDC is equal to $1. Both coins maintain their $1 valuation by maintaining a cash reserve that is stored in central institutions, usually banks. This means that the circulating supply of both coins is backed by an equal amount of fiat currency or equivalent bonds or treasury bills.
This also means that every USDT/USDC is redeemable for dollars. Therefore, if their prices were to dip below $1, investors could earn a quick profit by purchasing USDT/USDC for a discount and redeeming it with Tether/Circle. This is the main similarity between the two stablecoins, now let’s look at their differences.
Market capitalisation
USDT is a clear winner in this department. It has a market capitalisation of more than $75 billion. On the other hand, USDC’s market cap comes in at $36 billion. This could be due to the fact that USDT has a 4-year head start over USDC. The latter was launched in 2018 while the former was introduced in 2014. Moreover, the recent banking crisis in the U.S. hasn’t play out well for USDC.
After the Silicon Valley Bank went bust a few days ago, Circle declared that it had $3.3 billion stuck at the downed banking institute. This caused investors to jump ship and convert their USDC holdings into other stablecoins. This caused the coin to lose nearly $10 billion of its market share to other greenbacks, including Tether. This has caused the gulf between the two coins to widen even further.
Tether is closely related to the crypto exchange Bitfinex, as both firms have top executives in common. Both were involved in a legal battle with the New York Attorney's office over allegations that Tether had used customer funds to cover the $850 million loss suffered by Bitfinex. The case ran from 2019 to 2021 and ended with a settlement in which Tether paid an $18.5 million penalty but admitted no wrongdoing.
Following the settlement, Tether agreed to publish quarterly reports on its reserves for the next two years. Shocking information surfaced from this case, revealing that Tether only held 2.9 percent of its reserves back then. However, gradually the numbers increased, and Tether began releasing monthly reports.
On the other hand, USDC is known to be more transparent. Circle has always released monthly attestations from Grant Thornton LLP to show it has sufficient reserves. The reserve backing of USDC is not as complex as that of USDT, as it consists only of cash and short-duration U.S. treasuries. On the other hand, USDT's reserves comprise a wide range of assets, including digital assets, which can be perceived as high risk.
Supported networks
Although both stablecoins have similar use cases, their exposure and adaptability rely on their compatibility with the blockchains. USDT is supported on multiple blockchains such as Omni Layer, Solana, Ethereum, Polygon, Tezos, Avalanche, OMG Network, Near Protocol, and Algorand. Meanwhile, USDC is supported by Algorand, Ethereum, Solana, Flow, TRON, and Hedera Hashgraph blockchains.
Therefore, while the difference is minimal, USDT does support a higher number of blockchains. This means that USDT has a wider reach than USDC. This also reflected in the daily trading volumes of the two coins. USDT has a daily trading volume of more than $50 billion, whereas USDC’s daily trading volume comes in at just over $6 billion.
USDT and USDC are both leaders in the stablecoin industry. Therefore, when tasked with the difficult choice of choosing between the two greenbacks, most users base their decision on person preference. For example, some users choose USDT as it is compatible with their preferred exchange and wallet. As such, you should do your own research before choosing a stablecoin for your trading and investment needs.
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