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Understanding Stablecoins: What’s the Difference Between USDT and USDC?

USDT and USDC are the two biggest stablecoins right now. Read on to find out why you should include them in your crypto portfolio.

Stablecoins are a type of cryptocurrency pegged to an external reference point, such as the USD to keep the value steady and minimise fluctuations. In most cases, to ensure there are sufficient reserves to maintain the peg, stablecoins are backed by assets, such as gold or cash

With their fixed value, stablecoins offer traders a way to enter and exit positions in more volatile cryptocurrencies as they work as a store of value. Before stablecoins, exiting a position meant traders had to go through the hassle and pay fees in order to convert their crypto assets into fiat currencies, repeating the process for every trade. 

While some exchanges offer wallets to hold USD in between trades, these are state/country-specific. If a trader’s region is unavailable, a sell order to cash out USD to a U.S. bank account can take up to five business days, while cashing out to an EU bank account with SEPA transfer takes a couple of business days. On top of the waiting time, there are also transaction fees for fiat withdrawal and deposits. 

Now, with stablecoins, a trader would be able to convert their earnings from a profitable trade into stablecoins while waiting for the next opportunity. Due to demand from traders and their steady store of value, stablecoins have become a way for individuals to earn passive income. By including stablecoins as part of your investment portfolio, you can enjoy high yields—like how Cabital offers 12% APY on USDT for our 7 Days Fixed Savings plan!

The popularity of stablecoins is evident. Since January 2021, the demand and supply of stablecoins have skyrocketed, exceeding a combined market cap of over $100 billion in July. 

Total Stablecoin Supply chart from The Block
Total Stablecoin Supply chart from The Block

Currently, two stablecoins, USDT (Tether) and USDC (USD Coin) dominate the market. They have a combined share of over 80% of the total stablecoin supply, with USDT holding the lion’s share of 57% and USDC in second place, making up nearly 25% of stablecoins.

Share of Total Stablecoin Supply chart from The Block
Share of Total Stablecoin Supply chart from The Block

What is USDT?

Tether’s USDT is widely recognised as the first stablecoin. In terms of market capitalisation, it’s fourth overall. It was launched in 2014 as a digital token backed by fiat currency, where the USDT is pegged at 1:1 to the U.S. Dollar to ensure stability in the exchange price. Once USDT is issued, it can be transferred, spent and traded just like any cryptocurrency. Its price is permanently tethered to the value of the corresponding fiat currency in reserve

To understand how Tether works, here’s a diagram that shows the cryptocurrency’s life cycle:

Tether’s lifecycle diagram
Tether’s lifecycle diagram

Tether promises that USDT holders can exchange and redeem their tokens for USD based on Tether’s terms of service. To ensure that one-to-one backing remains constant, the balance of fiat currency held in Tether’s reserves will be equal or greater than the number of tokens in circulation. Based on Tether’s transparency balances, there is a $162 million excess of assets over liabilities at the time of writing. 

Breakdown of Tether’s Assets
Breakdown of Tether’s Assets

Based on the June 2021 consolidated report, 85% of Tether’s assets are in cash, cash equivalents, short-term deposits and commercial papers—an increase of 9% from the previously shared reserves breakdown in March 2021.

Breakdown of Tether’s Cash, Cash Equivalents, Short-Term Deposits and Commercial Paper
Breakdown of Tether’s Cash, Cash Equivalents, Short-Term Deposits and Commercial Paper

Tether’s come under fire for the high percentage of commercial papers and certificates of deposits in its reserve assets, as these lead to perceptions that Tether’s assets are relatively risky. Yet, the focus on short-term deposits and debt obligations and the interest generated remain consistent with Tether’s emphasis on liquidity while providing fuel for growth.

Another common criticism is that Tether is a centralised currency, which is at odds with the decentralisation of the blockchain ecosystem. However, as seen in the recent news about the $611 million Poly Network hack, Tether’s reaction was one of the fastest, freezing $33 million worth of USDT associated with the incident

USDT Stability

Based on historical data, the USDT token price generally holds steady at US$1. While there are slight dips and highs, the market quickly corrects itself to return to the US$1 pegged value. 

USDT Price Chart from CoinGecko

USDT Volume

The trade volume for USDT is a testament to the stablecoin’s popularity. As of this time of writing, the 24h trade volume of USDT clocks in at over $64 billion—almost two times that of the second-place currency (Bitcoin at $34.3 billion). Meanwhile, USDT’s market capitalisation is steadily increasing, with a current value of almost $65 billion.

USDT Market Cap Chart from CoinGecko
USDT Market Cap Chart from CoinGecko

What is USDC?

Now that we’ve covered USDT, it’s time for a closer look at USDC (USD Coin). USDC was established in 2018 by Circle and Coinbase, and it’s pegged at 1:1 with the U.S. Dollar. Unlike USDT, of which Tether is the only issuer, USDC can be issued and redeemed by other member institutions of the CENTRE Network, such as Coinbase. 

Commercial issuers of USDC are required to meet licensing, compliance, accounting, and technical and operational requirements. To ensure that USDC maintains a constant one-to-one backing, issuers also have to back all tokens with fiat reserves and supply monthly proof of reserves

Based on the latest reserve account report from Circle from May 2021, the total number of USDC stablecoins in circulation is $22.18 billion, while the reserves total $22.2 billion. Initially, USDC claimed to be backed by USD in a bank account, but they’ve recently changed their statement to include assets with equivalent fair value.

As seen in their reserve breakdown, like Tether, Circle also holds a mix of assets like certificates of deposits, U.S. treasuries and commercial papers. However, unlike Tether, Circle’s blend of reserves is different, with a greater focus on cash and cash equivalents and a smaller share of commercial papers. Proponents of USDC view the stablecoin’s larger allocation of cash and cash equivalents as indicative of Circle’s capacity to support large-scale USDC redemptions in the event of a crisis.

Breakdown of USDC Reserves in May
Breakdown of USDC Reserves in May

USDC Stability

Like USDT, the USDC coin price remains stable at around US$1. While there have been dips and highs, these are quickly corrected, returning the value of USDC back to US$1.

USDC Price Chart from CoinGecko‍
USDC Price Chart from CoinGecko

USDC Volume

USDC ranks eighth according to market capitalisation, and it’s on the rise, albeit with a lower value of $27.5 billion. However, the 24h trade volume for USDC is significantly lower than USDT at only $2.7 billion versus the latter’s $64.5 billion.

USDC Market Cap Chart from CoinGecko
USDC Market Cap Chart from CoinGecko


USDT vs USDC

Both USDT and USDC are popular stablecoins, and both are pegged to the USD. For easy reference, we've summarised key traits of both stablecoins in this table:

Table 1: USDT vs USDC Summary
Table 1: USDT vs USDC Summary

Get Started Investing in Stablecoins

Diversifying your investments to include stablecoins is a great way for investors with moderate risk appetites to profit from crypto market growth, without the volatility risks associated with typical cryptocurrencies. Stablecoins like USDT and USDC constantly maintain their value at US$1, as opposed to the more drastic gains and losses of cryptocurrencies like Bitcoin and Ethereum.

Also, there’s a high demand for stablecoins, which are commonly used to service cryptocurrency trading and serve as a store of value. Due to this demand, depositing your stablecoins in a savings account at a company like Cabital lets you earn interest at a rate of almost ten times that of a bank with minimal risk. 

As Cabital has no preconditions, you can start with investing a small sum of USDT into Cabital’s 7 Day Fixed Savings plan with 12% APY and watch your money grow.

Get started with Cabital today

If you’ve already started using Cabital, invite your friends and stand to earn up to 500 USDT.

All information is accurate at the time of writing.

This article has been prepared by Cabital Fintech (LT) UAB  (the “Company”) and is general background information about some of the Company’s activities at the date of this presentation.

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