USDT vs USDC/Tether vs Circle - What's the difference between the two stablecoins?

Does it matter which stablecoin you buy? Let’s analyze the differences between the two and see which one, if any, is better - USDT or UDSC.

Both stablecoins share the same purpose, to bridge the gap between fiat currencies (government-issued currencies) and cryptocurrencies. As their name states, stablecoins aim to achieve a stable price valuation to another asset. They are typically pegged 1:1 to a currency such as the US dollar or euro, the price of a commodity like gold or a financial instrument.

So, again, what's USDT, is USDT safe, what is USDC crypto, and what are their meanings?

USDT was launched by Tether in 2014, while USDC was launched by Centre (at the time a venture between Circle and Coinbase) four years later in 2018. USDT is the leading stablecoin with a market capitalization of almost $100 billion and a daily trading volume that exceeds that of USDC by almost 30 times. USDC’s market capitalization is roughly $28 billion with daily transaction volumes of around $4 billion.

USDC has 1.8 million global holders, while USDT has 4.6 million holders, according to Bitquery data from October 2023.

USDC, far more transparent than USDT in regard to its reserves

Stablecoin issuers must hold reserve assets to credibly fulfill their promise of a 1:1 peg to their stablecoin to a dollar (or other assets that it is pegged to). “For that reason, public information and perceptions regarding the quality, transparency and volatility of reserves are key for stablecoin peg stability,” the Bank of International Settlements said.

USDC’s Circle is renowned for its transparency and for holding regular audits. The latest filing available shows that USDC held almost 60 percent ($14.7 billion) in US Treasury repurchase agreements, 27 percent ($6.6 billion) in US Treasury bills and the remaining 13 percent ($3.4 billion) in cash at the end of December 2023.

“USDC stands out as the best stablecoin due to its full 1:1 backing by U.S. dollars, rigorous regulatory compliance in New York, and trusted management by financial institutions like BlackRock,” the Head of Research at Datawallet, Antony Bianco underlined.

 As for USDT, almost two-thirds of its reserves were made up of US Treasury bills ($57 billion), while reverse repurchase agreements made up a tenth ($10 billion) and money market funds a twelfth ($8 billion) at the end of December 2023. Tether is less transparent than Circle and does not carry out regular audits.

 “Tether occupies the second spot for reliability. Although it's extensively used, Tether Limited, the issuer, has faced criticism over its reserve transparency. Additionally, it has encountered legal issues, including allegations of misleading practices by the Justice Department,” Bianco added.

But USDT is more stable than USDC

When comparing their peg stability, USDT comes out as a clear winner with a standard deviation of a mere 0.001 from its peg at $1 and an average price of $1.0002 as of the fourth quarter of 2023, according to the latest data available published by Cambridge’s Centre for Alternative Finance. USDC’s standard deviation from its $1 peg was 0.0039 with an average price of $0.9997 for the same period.

Over the past year, USDT has traded 1 percent above its $1 peg four times, with the longest depegging incident lasting 7 hours. USDT investors have not experienced any depegging incidents below 0.5 percent of its parity.

Depegging incidents, where the stablecoin falls below parity, can happen for multiple reasons. The lack of sufficient reserves or transparency regarding these reserves, demand imbalances, market speculation and vulnerabilities in the smart contract stablecoins are built on can all lead to depegging.

This brings us to a question - is USDC safe?

Here, USDC has fared worse than USDT over the past year, losing its parity by more than 5 percent on two occasions. One of these incidents lasted for an hour, while the other lasted for 15 hours. Depegging incidents of more than 0.5 percent below its parity occurred three times over the past year, with the longest incident lasting 50 hours, data from the Centre for Alternative Finance shows.

 In the past 2 weeks, stablecoin holders with $10,000 to $100,000, added $44.3M in USDT but dropped $20.6M in USDC, data released by Santiment on Feb 20 shows.

Summary

In conclusion, the choice between USDT and USDC matters. While both stablecoins serve the same purpose, USDC stands out for transparency, rigorous compliance, and trustworthy management. On the other hand, USDT demonstrates greater stability despite concerns about transparency and legal issues. But, USDT vs USDC... the decision ultimately depends on individual preferences and risk tolerance.