USDC vs. USDT: Comparing Stablecoins

Stablecoins such as USDT and USDC are essential for crypto investors because they provide a stable value linked to fiat currency, reducing exposure to market volatility. Let’s take a closer look at each and how they compare on key factors important to savvy crypto users.

Tether (USDT), launched in 2014, is a stablecoin that keeps a peg to the USD, backed by a fiat currency reserve and other assets. Despite its widespread use, USDT has faced several controversies. In 2021, Tether was fined $41 million by regulators for misleading users about the adequacy of its asset reserves.

USDT remains the most widely used stablecoin globally, partly because it was one of the first stablecoins introduced. It has the largest market cap and is supported by numerous DeFi protocols. Initially issued on the Omni Layer, a Bitcoin protocol, USDT has since expanded to Ethereum, Tron, Solana, and other networks.

Circle introduced the USDC stablecoin in 2018. It first launched on the Ethereum blockchain but has since expanded to other networks like Algorand, Solana, and Stellar. Managed by the Centre consortium (including Circle and Coinbase), USDC offers monthly audits of its reserve assets.

This transparency sets the USDC stablecoin apart from USDT. Despite serving the same fundamental purpose, USDT and USDC differ significantly in terms of transparency, adoption, and reserves.

Launched in 2014 and 2018 respectively, USDT and USDC aim to maintain a value close to $1, supported primarily by short-term treasury reserves. Although they serve similar functions, USDT and USDC differ significantly in terms of transparency, backing, and controversies.

While USDT has a longer history and larger market capitalization, it has faced issues related to transparency and legality. Conversely, USDC is seen as a safer option due to its regular audits and simpler reserve mechanisms. Choosing between USDT vs USDC will depend on individual preferences regarding safety, transparency, and utility.

Here are some key factors to consider when choosing which of these stablecoins to use.

USDT, launched in 2014, has enjoyed greater adoption compared to USDC, which debuted in 2018. Tether’s longer presence in the market has allowed it to build a larger user base over the years.

Winner: USDT

Tether has faced scrutiny for misleading users about its reserves. Investigations revealed that Tether’s claims about its reserves were inaccurate. In contrast, USDC provides monthly third-party assurances of its reserves, despite facing its own challenges like the Silicon Valley Bank crisis.

Winner: USDC

USDC’s reserves are held with regulated financial institutions, ensuring compliance with financial regulations. Tether, despite claiming to follow world-class compliance measures, lacks transparency regarding these measures.

Winner: USDC

Both USDC and USDT are pegged to the value of the US dollar, maintaining a 1:1 ratio. The price fluctuates marginally.

Winner: Tie

Tether’s redemption service requires a minimum of 100,000 USDT ($100,000) and additional verification fees. USDC offers a simpler redemption process with a much lower minimum requirement of $100.

Winner: USDC

Both USDT and USDC have experienced de-pegging incidents where their value slipped below $1. However, both stablecoins managed to return to their pegged value within a short period.

Winner: Tie

Tether, being in the market since 2014, has a longer history compared to USDC, which was launched in 2018.

Winner: USDT

Tether (USDT) has faced criticism for its lack of transparency, while USDC’s parent company, Circle, has consistently provided audited reports on its reserves, offering more transparency to users.

Winner: USDC

The choice between USDT and USDC depends on individual preferences and priorities. If you prefer a more widely adopted coin, USDT is the better option. If you prioritize transparency and regulatory compliance, USDC is the better choice.

USDC is backed by regulated financial institutions with reserves, which helps protect against a potential collapse but also introduces associated risks. In 2023, USDC briefly lost its peg to the USD after the collapse of Silicon Valley Bank, which held 8% of USDC’s reserves. As with anything in crypto, there are risks involved in holding stablecoins.

You can purchase USDC and USDT by starting an account with a centralized exchange. Platforms like Coinbase, Kraken, and Gemini are credible options for buying stablecoins like USDC and USDT.

Although stablecoins like USDC and USDT are pegged to the US dollar and designed for transactions subject to capital gains tax. US taxpayers who receive stablecoins as income will be subjected to regular income taxes, and traders who move in and out of other crypto into stablecoins can expect the usual capital gains tax treatment. Trading crypto for crypto is subject to capital gains taxes, in other words.

Learn more about tax rates for cryptocurrency.

USDC vs USDT FAQs

Is USDC safe?

USDC is often viewed as more secure than USDT because of its commitment to transparency and adherence to regulatory standards. Routine audits and real-time reserve reports confirm that USDC is supported by tangible assets.

Why is USDC dropping?

Between 2022-2023, USDC’s market capitalization declined by almost 50%. Despite this, the price of one USDC remains pegged to the U.S. dollar. The decline in market cap reflects a decrease in supply as cryptocurrency investors turn to alternatives like USDT. This drop is partly due to the loss of investor trust following the de-pegging incident caused by the collapse of Silicon Valley Bank.

Can I transfer USDC and USDT to my bank account?

Currently, most American banks do not support stablecoins, although there are some notable crypto friendly banks. In most cases, you’ll need to convert your USDC and USDT to USD before transferring it to your bank account.