The cryptocurrency movement is home to a wealth of projects that are trying to achieve fundamentally different things. While much of the crypto spectacle that comes from watching the price of a cryptocurrency like Bitcoin climb, stumble, and skyrocket, projects known as stablecoins are taking a far different approach. Over the last few years, stablecoins such as Tether (USDT) and USD Coin (USDC) have become incredibly popular ways to interact with the cryptocurrency industry while remaining insulated from the price fluctuations many cryptocurrencies are known for.
This article will provide a primer on stablecoins and explore the differences and similarities between two of the largest stablecoin projects in the landscape today: Tether (USDT) and USD coin (USDC). Once you're done, you can use Invity's Buy crypto feature to diversify your crypto portfolio with the coin you like best thanks to our provider BTC Direct, which has just made it even easier to buy stablecoins using a credit card or bank transfer!
What are stablecoins?
Stablecoins are cryptocurrencies that—true to their name—attempt to hold a more stable valuation. To do so, they are pegged to the value of an existing asset like the US dollar. This usually means that 1 stablecoin is worth the same as 1 dollar and stays that way. Compare this to 1 bitcoin, which can be worth $50,000 one morning and $42,000 later that same day. Yet like a “traditional” cryptocurrency like Bitcoin, stablecoins still make use of blockchain technology in order to facilitate a secure, transparent, and worldwide medium of exchange.
One of the core uses for stablecoins is as a bridge between fiat currencies like the US dollar or euro and decentralized assets. While many exchanges—like those in Invity's crypto exchange comparison tool—offer ways to purchase a significant number of cryptocurrencies directly with various fiat currencies, the fact remains that the sheer volume of crypto projects that exist means that not every single coin can be purchased with a fiat currency. Luckily, stablecoins like USDT and USDC enable people to easily purchase some harder-to-get cryptocurrencies.
Another core function of stablecoins is their use in smart contracts. Since smart contracts are programmed agreements that are automatically executed once certain conditions are met, using a stablecoin is a way to help ensure that the amount agreed upon at the time of the contract’s creation is the same as the amount paid out at the time of its completion.
Stablecoins represent some of the most frequently traded cryptocurrencies. Rather than have to cash out from crypto to fiat, stablecoins can be used to convert between different cryptocurrencies and/or as a way to continue to hold value in crypto while simultaneously avoiding the instability that often brings crypto to the headlines
In addition, stablecoins tend to offer many of the medium of exchange benefits that are often ascribed to cryptocurrencies like Bitcoin. These include cross-border payments and remittances, thanks to their comparatively low fees when sending large transactions.
Importantly, stablecoins are often not seen as a direct competitor or alternative to the digital coins and platforms that you know and love. Instead, stablecoins have specific goals, uses, and functions—there’s plenty of space for multiple different types of cryptocurrencies to exist side by side!
The largest stablecoins in the landscape today are USDT and USDC.
What is Tether (USDT)?
Tether (USDT) is a stablecoin that dates back to an earlier iteration known as RealCoin, which launched in 2014. Soon after, it was rebranded as Tether. Today, it is one of the landscape’s largest cryptocurrencies both in terms of word-of-mouth and market cap. As of press time, Tether is the world’s fourth biggest crypto by market cap according to CoinMarketCap. In addition, more than $83 billion US dollars worth of USDT was purportedly traded in the last 24 hours alone.
The asset was designed to bridge the divide between fiat currencies (like the US dollar and euro) and cryptocurrencies. Part of its core design is the idea that the asset can hold a more stable value than many other cryptocurrencies by having its value "pegged" to a non-crypto asset: the US dollar.
A report by CryptoCompare in February 2021 found that USDT represents the majority of bitcoins traded into fiat or other stablecoins. Notably, it is currently the most traded cryptocurrency in the world.
What is USD Coin (USDC)?
Like Tether, USD Coin (USDC) is one of the world’s most notable stablecoins at the current point in time. According to CoinMarketCap, it boasts a spot as the 7th largest cryptocurrency in the world by market cap and has a 24-hour trade volume of over $5.3 billion.
While not quite the size of USDT in terms of market cap or trade volume, USDC still stands as a giant among other projects in the space. Further, USD Coin has significant backing behind it, having been launched in 2018 by the Centre Consortium.
Founded by Circle and Coinbase, the Centre Consortium is an organization established to provide standards of governance for the USDC. The stablecoin is pegged at a 1:1 rate to the US dollar, and aims to make transactions faster and cheaper than traditional payments without the price fluctuations typical of major cryptocurrencies.
USD Coin’s native token, USDC, is built on the ERC-20 token standard. This means it functions on the Ethereum blockchain and is compatible with any ERC-20 token standard.
These coins can be cashed out to US dollars at a 1:1 rate in countries where Coinbase offers USDC support. In other words, if you live in a supported jurisdiction, the company claims that you can easily exchange your USD Coins to regular US dollars.
USDC vs USDT: What's the difference between the world's most popular stablecoins?
Despite their similar ticker symbols, USDT and USDC are two very different projects.
One of the most apparent differences between them lies in Tether’s liquidity. USDT is currently the most traded cryptocurrency in the world, surpassing even Bitcoin in terms of its 24-hour trade volume. In addition, the fact that Tether has been a popular mainstay of the industry for so long has resulted in many exchanges offering the ability to purchase USDT with fiat currencies. While USD Coin is also relatively simple to trade and purchase, USDT’s popularity means that it is simply unmatched in this regard.
Another area in which Tether has a leg up over USD Coin is when it comes to interoperability. Simply defined, interoperability in the crypto world is the ability for a project to communicate through multiple blockchains. USD Coin supports Ethereum, Algorand, Solana, and Stellar. By contrast, Tether currently supports nine chains: Algorand, EOS, Ethereum, Liquid Network, Omni, Tron, Liquid, SLP, Bitcoin Cash, and Avalanche. Notably, however, both projects have committed to introducing support for more chains in the future.
Where USD Coin really holds its own in the USDT vs USDC debate, however, is when it comes to the project’s reputation. Backed by some of the largest players in the cryptocurrency industry today, USDC is often treated as a more secure asset to hold long-term. This is furthered by the fact that Tether has been subject to controversy regarding a lack of upfront audits, whereas USDC has been frequently audited by Grant Thornton, one of the world’s largest accounting firms.
These audits have also revealed that, out of these two coins, USD Coin is more readily backed by the US Dollar. While it hasn’t done much to dethrone USDT’s popularity, reports earlier this year found that part of Tether’s reserves are non-fiat assets. In contrast, USD Coin’s most recent external audit found that there is at least $1 US dollar held in segregated accounts for each USDC token in circulation—giving merit to the Centre Consortium’s claims that USDC is backed by a fiat currency reserve.
The short version? USDT and USDC are both immensely popular ways to engage with cryptocurrencies and digital assets that are far less prone to drastic price variations. In addition, these stablecoins also open up access to many more crypto trading pairs for those who want to diversify their crypto portfolio or explore all that the world of crypto has to offer. USDC and USDT stand as not only the most popular stablecoins in the world, but also as two of the most frequently-traded cryptocurrencies overall on the market today.
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