If you are interested in cryptocurrencies, you have probably heard of stablecoins. These digital assets have become massively popular since they promise to hold off the volatility associated with crypto in general.

In this Tether vs USD Coin review, we’ll explain why these stablecoins are a huge deal, discuss their differences, and list the risks and benefits of trading them.

The History of Tether (USDT) and USD Coin (USDC)

USDT, the stablecoin issued by Tether Holdings Ltd, is the largest stablecoin in the market but has a pretty controversial history. The coin was issued in 2014 and quickly became a major player in the industry after announcing a collaboration with the crypto exchange Bitfinex.

In 2017, Paradise Papers revealed that Bitfinex and Tether were not, in fact, two independent companies but were founded and operated by the same group of people. Financial crime experts claimed that Bitfinex and Tether had used their collaboration to manipulate the price of Bitcoin.

Tether and Bitfinex ended up paying over 50 million dollars in fines when it came out that Tether had used its reserves to lend its sister company Bitfinex over 900 million dollars when the exchange had a liquidity shortage. What’s more, Tether’s lawyer admitted that Tether was only 74% backed. 

As for USDC, the coin was launched in 2018 by Coinbase and Circle as a rival stablecoin for USDT. The companies took advantage of Tether’s troubles with law enforcement and media to carve a space in the market for a new stablecoin, advertised as transparent and compliant. 

Circle promised there would be a dollar in bank reserves for every USDC the company had minted during the lunch. However, in 2020 the attesting company announced that the reserves could be held in investments instead of USD.

Then in 2022, Circle Internet Financial Inc. released a statement of USD Coin’s assets for the first time and revealed that the company only held 61% of the backing assets in cash and cash equivalents and 9% in commercial paper. Total assets included corporate bonds, US Treasury bonds, and commercial paper.

How Do Tether and USD Coin Work?

To understand the stakes of investing in USDT and USDC, you must understand how stablecoins work.

Most cryptocurrencies, including Bitcoin and Ethereum, aren’t backed by external assets. These coins have value mostly because people think they have value or will gain value in time. In other words, they are speculative assets that derive value from market speculation.

Stablecoins like USDT and USDC are backed by external assets like equities, cash, and precious metals. This reduces the volatility of the coins and allows people to enter and exit the market without significant risk.

These days, most crypto trades are denominated in stablecoins. In other words, stablecoins function as the glue that holds the entire crypto market together. That gives the issuing companies a lot of power but also a lot of responsibility. 

Crypto business, while worth billions, is mostly illiquid and depends on stablecoins for cash flow. If a stablecoin fails to hold its peg, it could wipe off billions from the market or cause a domino effect that affects everyone in the crypto business. 

Today, it’s well known that most cryptocurrencies aren’t backed (or fully backed) by dollar reserves. This introduces an element of risk to the whole enterprise – if the issuing company loses its investments, stablecoins will lose their backing.

Now that you understand the high stakes in the stablecoin game, let’s move on to our actual review and compare USDC and USDT.

What Are the Main Use Cases of USDT and USDC?

Stablecoins have many use cases. First of all, USDT and USDC are popular trading pairs for cryptocurrencies. You can trade thousands of coins with these stablecoins, including Bitcoin, Ethereum, Dogecoin, Shiba Inu, and many more.

It’s hard to trade smaller altcoins with fiat currencies like USD or EUR (though it has become at least easier to purchase them thanks to third-party providers), but USDT and USDC provide perfect gateways. Even the exchanges and DeFi protocols that can’t access traditional banking routes can provide access to most altcoins via stablecoins.

Secondly, since these coins have a fixed value, merchants can accept crypto payments denominated in USDT or USDC without worrying about volatile crypto prices. 

Finally, USDC and USDT are massively popular on DeFi protocols, as traders can lend their stablecoins to earn passive income thanks to high-interest rates.

It should be noted that many of these decentralized finance protocols are completely unregulated, and many have collapsed due to unsustainable business practices, which in some cases amount to pyramid schemes, like Celsius, the crypto company that offered 8.8% returns on Tether. 

USDT and USDC Price History

USDT Price History

USDT’s dollar value should always equal $1, but there can be slight fluctuations during bank runs. The price usually quickly recovers to its $1 fixed price. 

USDC Price History

USDC’s dollar value should always equal $1, but there can be slight fluctuations in the price during bank runs. The price usually quickly recovers to its $1 fixed price. 

Tether and USD Coin Market Cap

USDT Market Cap

USDT is the largest stablecoin and the third-largest cryptocurrency by market capitalization after Bitcoin and Ethereum.

As of January 2023, there are over 60 billion USDT tokens in circulation. The asset lost some ground in market cap following FTX’s bankruptcy.

The asset doesn’t have a set total supply. Tether can mint as many USDT as they want, though the company should have the equivalent USD in reserve for each token, at least in theory.

The amount of USDT in circulation changes based on the demand for Tether. If the demand increases, Tether mints more tokens, and when people cash out or convert USDT to other coins, the company burns the surplus tokens.

USDT is available on most major exchanges and is supported by many blockchain networks, including Ethereum, Algorand, Stellar, Hedera, Tron, Solana, and more.

USDC Market Cap

USDC is the third-largest stablecoin and fifth-largest cryptocurrency by market capitalization after Bitcoin and Ethereum. There is currently a circulating supply of 43 billion USDC.

USDC doesn’t have a total supply, and Circle-approved financial institutions can issue USDC based on the demand for the asset. Like with USDT, total supply varies depending on the market demand. 

USDC is available on most major exchanges and is supported by many blockchain networks, including Ethereum, Algorand, Stellar, Hedera, Tron, Solana, and more.

Binance has delisted USDC and many other stablecoins (but not USDT) in 2022. 

Main Similarities Between Tether and USD Coin

USDT and USDC are both stablecoins backed by USD. A single USDT and USDC must be worth 1 USD all the time.

USDC and USDT are popular stablecoins you can find on most cryptocurrency exchanges. You can use both assets to trade BTC and altcoins, borrow and lend at DeFi protocols, or make crypto payments.

They don’t have total supplies since the issuing institutions can create more if there is a demand for the assets. 

Finally, both assets have received criticism regarding security and are facing transparency issues. Neither stablecoin’s reserves have been fully audited by an independent company.

Main Differences Between Tether and USD Coin

USDT remains the most widely used stablecoin in the world, but USDC has also gained a lot of ground in recent years. USDT’s reputation has taken a big hit due to the company’s lack of transparency, and USDC has successfully marketed itself as a safer and more transparent alternative.

Let’s look at the differences in more detail.

Trading Pairs and Exchange Availablity

Although both stablecoins are available on major blockchains and can be paired with thousands of digital assets, this has changed with the increasing centralization in the crypto-ecosystem. 

For instance, Binance delisted USDC in 2022, announcing that the platform would only support BNB and USDT stablecoins. It remains to be seen whether other crypto exchanges like Coinbase will follow Binance’s example and start delisting competitor stablecoins.

Transparency and Trust

As you might have guessed, Tether has come under fire for its secrecy and missteps regarding USDT. While the company releases assessments from affiliated institutions, there is no way of knowing if the asset is actually fully backed. 

NY Attorney general announced, at the end of Tether’s investigation, that Tether didn’t have the funds it claimed to have, but without an official audit, it’s impossible to know the full picture.

Tether has been publishing daily updates regarding its reserves, but there hasn’t been a full audit, despite the order from the Commodity Futures Trading Commission for the company to complete one. 

USDC’s parent company releases regular assessment reports on their reserves, but once again, these reports aren’t audits. Accounting firm Grant Thornton LLP assesses the reserves and publishes findings monthly. That said, Circle has made less risky investments than Tether and has pledged only to own US dollars and short-term treasury bills.

Interest Rates on USDT and USDC

You can lend and stake both assets to earn income from your assets. Several DeFi protocols offer interest on your stablecoin assets at varying rates.

DeFi protocols are crypto investment instruments that have become popular since 2017. You can send your coins to these protocols for a certain amount of time to take advantage of the relatively high APY they offer compared to banks.

You can check out DeFi protocol interest rates for USDT and USDC online or on different exchanges. Interest rates can vary weekly, so it’s a good idea to check often how much each protocol offers.

Please note that DeFi protocols are mostly unregulated. While they often promise high rewards, several DeFi protocols and associated exchanges have gone bankrupt, taking customer funds along with them. 

While the market had offered 5% to 20% interest rates in the past, most reputable DeFi providers don’t offer more than 2% as of January 2023. If an offer looks too good to be true, you should proceed with caution.

You can also check out the staking rewards for these stablecoins on different platforms. However, don’t send your coins to an exchange just because it seems to offer high rewards, as you may lose your investment if it isn’t trustworthy. Check out our reviews on the 22 best cryptocurrency exchanges to see the best options in the market.

Tether vs USD Coin: Risks Associated With USDT and USDC

Tether promised to provide full audits after it was fined by the CTFC, but the company instead published “attestations,” which are not audits. Attesting companies have no way of affirming what Tether’s actual reserves look like.

The company continued to publish daily reports of its reserves, revealing that by 2022, almost half of the Tether in circulation was backed by short-term unspecified commercial paper. This also roused suspicions because investors have no way of knowing who is borrowing money from Tether and whether they can pay it back. 

While the CEO, Jan Ludovicus van der Velde, and CFO, Giancarlo Devasini, refuse to make public appearances or answer journalists’ questions about Tether in general, the company still has a very strong presence and generally has the market’s trust. USDT barely lost its peg during the controversy.

On the other hand, USDC’s issuer Coinbase is generally known for its compliance with the authorities to do business in the US and elsewhere and is generally regarded as more reputable than its rival exchanges, a fact which the company took full advantage of when it marketed the stablecoin. 

USDC gained a lot of ground in the market following its launch, but compliance and transparency are thorny issues for all crypto businesses. While USDC has a better reputation compared to its chief rivals, USDT and BNB, it’s hard to know how stable these stablecoins are in reality.

Where Can You Buy USDT and USDC?

You can purchase USDT or USDC on most cryptocurrency exchanges. Binance has recently delisted USDC, so pick a different exchange if you want to purchase USDC. 

Similarly, Crypto.com recently delisted USDT for Canadian customers due to regulatory issues.

But overall, you can find these assets on almost any cryptocurrency exchange and purchase them via bank transfer, credit and debit cards, or third-party payment providers like Apple Pay and Google Pay.

How Can You Exchange USDT for USDC?

You can exchange USDT for USDC on most cryptocurrency exchanges. All you have to do is to check whether the crypto exchange you choose lists both coins. Coinbase offers free USDT to USDC conversions from time to time.

Future Plans for Tether and USD Coin

It’s hard to tell what is in the future for USDT and USDT. Experts claim the potential meltdown of stablecoins like USDT and USDC could negatively impact traditional financial domains.

Regulators are developing plans to tackle stablecoins in 2023, and Canada Ontario has already banned the sale of USDT by crypto exchanges, though it’s not known how many exchanges will comply with the ban.

Overall, regulator attention should mean more transparency for both assets. Tether already announced plans to reduce secured loans to zero in 2023.