When it comes to stablecoins, two of the most popular options are USDC (USD Coin) and USDT (Tether).
Both are pegged to the U.S. dollar, meaning 1 USDC or 1 USDT is supposed to always be worth $1.
But there are some differences that businesses need to know about before choosing which one to use.
This article will look at the pros and cons of each and help businesses decide which might be better for them.
What Are USDC and USDT?
Stablecoins are designed to give the stability of traditional currencies while allowing businesses to still use them in the world of cryptocurrency.
An example of such stablecoins includes USDC and USDT.
USDC is one of the newer cryptocurrencies created in 2018 by Circle in collaboration with Coinbase. It works very transparently and is backed 1:1 with U.S. dollars in reserve.
By contrast, USDT, otherwise known as Tether, was created as far back as 2014 and hence is one of the oldest stablecoins.
It is also pegged at 1:1 to the U.S. dollar, but the percentage of its reserves in actual cash has come under a lot of question.
Key Differences Between USDC and USDT
Let’s break down the difference between USDC and USDT into simple terms.
| Feature | USDC (USD Coin) | USDT (Tether) |
| Founded | 2018 by Circle and Coinbase | 2014 by Tether Limited |
| Transparency | High – Audited by third-party firms | Medium – Quarterly attestations |
| Reserves | Mostly cash and U.S. Treasuries | Mix of cash, loans, bonds, and other assets |
| Regulatory Compliance | Strong focus on compliance | Faced legal challenges and fines |
| Adoption | Growing rapidly in business sectors | Widely used on exchanges and DeFi |
| Blockchains Supported | Over 10 including Ethereum, Algorand | Multiple including Ethereum, Tron, Solana |
Advantages of Using USDC
- Transparency: USDC is relatively transparent when it comes to its reserves. They are audited on a regular basis, for instance, by the companies Grant Thornton LLP. Therefore, you actually know what your USDC tokens are backed with.
- Regulatory Compliance: USDC obeys the law. This can be a huge plus for businesses that need to be very sure of their compliance with financial regulations.
- Lower depegging risk: USDC usually has a lower depegging risk against the dollar due to its more conservative strategy of keeping its reserves in cash and short-duration U.S. Treasuries.
Cons of Using USDC
- Lower liquidity: While USDC is one of the fastest-growing cryptocurrencies, it is not as widely adopted as USDT and, hence, not as liquid. That might mean higher trading costs or longer trading times if moving big figures.
- Dependence on U.S. Regulations: Since this is based on compliance, it’s more dependent on changes in U.S. regulations. If rules tighten, it could affect USDC more so than USDT.
- Limited Exchange Support: USDC may not be supported on all exchanges, particularly new or smaller exchanges.
Pros of Using USDT
- High Liquidity: USDT happens to be one of the most traded stablecoins; therefore, its liquidity is high. One can easily convert it into other cryptocurrencies or even into fiat currency.
- Wide Adoption: Most, if not all, major crypto exchanges support USDT. Due to that fact, USDT should be very convenient for those businesses seeking fast trades.
- Diversified, flexible reserve management: Tether keeps a diversified portfolio of its reserves in cash, bonds, and other investments. This theoretically means additional stability in changing economic conditions.
Cons of Using USDT
- Lack of Transparency: Tether has faced scrutiny, and even fines, for not being totally transparent about its reserves. That could be a risk if trust is essential in your business.
- Legal risks include regulatory ones: For instance, there is the $18.5 million fine against USDT by New York’s Attorney General Office in 2021. It is a risk to which businesses need to pay attention.
- Risk of depegging: There have also been times when USDT has lost peg against the dollar, and the holder can be faced with short-run losses. This may be a problem if you are holding in great quantity.
How to Choose Between USDC and USDT
When deciding between USDC and USDT, think about what matters most to your business:
- Regulatory Compliance: If you need to follow strict regulations, USDC might be better.
- Liquidity Needs: For quick and easy trading, USDT is more widely accepted.
- Transparency and Trust: If you want clear proof of reserves, USDC wins.
Tips for Businesses
- Diversify: You don’t have to choose just one. Consider holding both USDC and USDT to balance liquidity and compliance needs.
- Stay Updated: Regulations and market conditions can change fast. Keep an eye on updates from both Circle and Tether.
- Test Small: Start with small amounts to see which stablecoin works best for your specific use cases.
Future Trends to Watch
Stablecoins like USDC and USDT could play even bigger roles as businesses move more into digital assets. Watch for:
- New Regulations: Governments are looking more closely at stablecoins. Future regulations could change how USDC and USDT operate.
- Integration with DeFi: Both USDC and USDT are used in Decentralized Finance (DeFi). New partnerships or blockchain support could shift the balance of power.
Conclusion
In my opinion, it depends on your business needs. If you value transparency and regulation, go with USDC.
But if you need high liquidity and ease of access, USDT might be better. Consider what aligns with your goals and risk tolerance.
Remember: Both USDC and USDT have their strengths and weaknesses. Use this information to make the best choice for your business.