USDT vs. USDC: Which stablecoin to сhoose?

High volatility and price fluctuations of cryptocurrency triggered investors to look for more stable alternatives within Web3. This led to the wide adoption of stablecoins — a secure and efficient financial tool. 

In this article, we discuss what fiat-backed stablecoins are and analyze the two most popular ones: USDC and USDT.

What are fiat-backed stablecoins?

Fiat-backed stablecoins are digital currencies tied to traditional currency reserves, such as the US dollar or the euro (usually at a 1:1 ratio). The issuer should keep one real dollar in a bank account to back up each released stablecoin, making them, in essence, the analogue of traditional money on the internet. 

Advantages of stablecoins

The main advantage of stablecoins is their price stability. Unlike Bitcoin, which can suddenly skyrocket or crash, a stablecoin holds its value. This makes them a safe way to store money and use it for everyday payments.

Stablecoins are a suitable option for fast global transfers, as using traditional banking means wasting a lot on high fees. In some cases, stablecoins offer the only possible way to run a transaction. 

Fiat-backed stablecoins are widely used in the world of digital finance (DeFi) for loans and savings to earn profit without the risk of losing money due to price swings. Additionally, every transaction is recorded in the blockchain, making the whole process possible to track.

What makes a stablecoin safe?

A stablecoin’s safety is determined by its ability to maintain its peg to an underlying asset consistently. Internal stability mechanisms ensure this. Key factors typically include:

• High-quality and liquid reserves: Each stablecoin must be backed by $1 in high-quality, liquid assets, like cash or short-term US Treasury bills. This ensures that holders can always trade their crypto assets back for a real dollar.
• Transparency and independent audits: Reputable issuers provide regular attestations and audits by independent, top-tier accounting firms. These reports show that stablecoins are fully backed by reserves.
• Regulatory compliance: Compliance with the SEC or MiCA enhances stablecoin safety by imposing requirements around capital, liquidity, risk management, and consumer protection.

Now, let’s consider and compare USDT and USDC, two of the most well-known and largest players among stablecoins on the market.

Tether (USDT): overview, stability, and volume

Tether (USDT) is the world's largest and most traded fiat-backed stablecoin. The coin was launched in 2014 and achieved widespread adoption. Its primary goal is to become a bridge between the crypto market and traditional finance.

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USDT stability

The stability of USDT stablecoin is supported by various reserves that, according to Tether Limited, fully back all tokens in circulation. However, in 2017, Tether lost $31 million due to a hack. The project was criticized for using a technical workaround ('emergency hard fork') to deal with the loss instead of simply admitting fault and being accountable. For many, this behavior has raised many questions about USDT stability.

USDT volume

USDT has the largest market capitalization among other stablecoins. At the time of writing, its key metrics include:

• Market capitalization: Almost $186.3 billion.
• 24-hour trading volume: Often exceeds $70 billion.

This high trading USDT volume provides deep liquidity that allows traders to execute large transactions with minimal impact on the price.

💡 Tip: If you are interested in the asset, you can find more information about the USDT stablecoin in this article.

USD Coin (USDC): overview, stability, and market cap

USD Coin is the second-largest and a highly regulated fiat-backed stablecoin. USDC was launched in 2018 by the Centre consortium, a joint venture between Circle (the issuer) and Coinbase. It is positioned as a reliable "digital dollar" due to its high reserve transparency and strict compliance. Due to this, the USDC stablecoin is widely adopted by institutional investors.

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USDC stability

The USDC stability is maintained through a full-collateralization mechanism:

• Reserves: Each USDC token is fully backed by US dollar cash or short-term US Treasury bills.
• Transparency: The issuer publishes monthly reports.
• Compliance: USDC is designed in accordance with regulatory standards such as the SEC and MiCA.

USDC volume

USDC is the second-largest stablecoin after Tether (USDT). At the moment of writing, its key metrics include:

• Market capitalization: Approximately $71.6 billion.
• 24-hour trading volume: Often exceeds $20 billion.

💡 Tip: If you are interested in the asset, you can find more information about the USDC stablecoin in this article.

Tether vs USDC: key differences

USDT and USDC look familiar, but they still have differences that can affect further choice. 

Launch date and reserve assets

Tether was launched in 2014, and USD Coin was launched in 2018. Since USDT is four years older than USDC, it has become the most widely used and popular stablecoin on the crypto market.

Both Tether and USD Coin are backed by traditional cash and liquid reserve assets. However, according to Blockworks, approximately 58% of Tether’s reserves are held in US Treasuries, with the remaining reserves consisting of a diversified set of assets, including cash, secured loans, and even gold. 

On the contrary, USDC is fully backed only by US cash and US short-term Treasuries. 

Blockchain and transparency

Both Tether and USD Coin operate on blockchains, providing full transaction transparency. Although Tether provides quarterly assessment reports, the varied USDT backing has triggered demands for more rigorous transparency and clearer reporting.

On the other hand, Circle publishes monthly reserve attestation reports, verified by independent "Big Four" accounting firms such as Deloitte, ensuring a high level of trust in USDC stability. USDC is also known as a strict MiCA compliance stablecoin.

Trade and liquidity volume

Tether USDT leads the stablecoin market, staying ahead of USD Coin USDC in size and liquidity on global exchanges. According to CoinMarketCap, USDT is traded ten times more often, with $50 billion in daily volume compared to USDC’s $5 billion. This shows that USDT is much more popular with traders and investors. However, USDC is actively used in regulated DeFi protocols due to its compliance. 



Both USDT and USDC represent one of the most successful examples of real-world assets on blockchain networks, with each token backed by reserve assets held off-chain.

Conclusion

Both Tether and USDC are digital analogs of the dollar. While both stablecoins maintain a 1:1 peg, they differ in their characteristics. USDT stablecoin is a market veteran with massive liquidity, though its reserves have raised questions. On the other hand, USDC stablecoin is transparent and much better regulated, but has lower trading volumes. All in all, the choice depends on the investor's needs.

FAQ

What is the best stablecoin?

The rating can differ with many criteria: volume, safety, institutional adoption, etc. For example, USDT leads the top by market cap, while USDC is the most trusted one. 

Is USDT or USDC better?

The choice of the best one depends on the investor's preferences: adoption or compliance. USDT offers a wider reach, while USDC provides better transparency and regulation.

Tether vs USD Coin?

The key USDC vs USDT differences are in liquidity and transparency. USDT dominates in terms of trading volume and global reach, while USDC leads in regulatory compliance and institutional trust.

How secure are stablecoins?

Stablecoin safety depends on its peg stability. This is ensured via liquid reserves, audit transparency, and regulatory adherence.

What are USDC risks?

USDC risks are associated with its centralized management, dependence on the traditional banking system, and changeable regulations.