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Dollars in Digital: A Deep Dive into USDC and USDT for Businesses

5 min

June 25, 2024

Stablecoins are transforming the landscape of business payments and settlements, offering a new frontier of stability and efficiency in the often turbulent world of cryptocurrencies. As our deep dive into stablecoins continues, we turn our focus to the titans of the market: Tether (USDT) and USD Coin (USDC). These two heavyweights dominate the stablecoin arena, each bringing unique strengths to the table.
In this detailed comparison, we’ll unravel the key features and distinctions between USDT and USDC, delve into their intriguing histories, and ultimately guide you in choosing the best stablecoin for your business in 2024. But before we dive into the specifics, let’s refresh our understanding of what stablecoins are and why they’re becoming a game-changer for modern businesses.
Additionally, consider exploring TransFi's Ramp product, which aids in the seamless buying and selling of digital assets, enhancing your business operations with ease.

What Are Stablecoins?

Imagine a world where your business transactions are as swift and reliable as sending an email, yet as steady and secure as holding cash in hand. This is the promise of stablecoins—a revolutionary breed of cryptocurrency designed to combine the best of both worlds. But what exactly are these digital marvels?

Stablecoins are a unique class of cryptocurrencies with one mission: to minimize the wild price swings that often plague digital assets. How do they achieve this? By anchoring their value to more stable assets, typically traditional fiat currencies like the US dollar or tangible commodities such as gold. Think of stablecoins as the financial equivalent of a well-balanced tightrope walker, maintaining equilibrium no matter how turbulent the market winds.

These digital dynamos accomplish stability through two primary methods. First, they maintain reserves of the underlying asset, much like a gold standard of old, ensuring each coin is backed by something of tangible value. Second, some employ sophisticated algorithms that automatically adjust the supply based on demand, keeping their value consistently aligned with the pegged asset.

Running on robust blockchain technology, stablecoins offer the advantage of 24/7 operations, allowing for instant trading and settlement across the globe. This continuous accessibility makes them a perfect solution for cross-border transactions, where traditional banking systems often stumble due to time zone differences, high fees, and slow processing times. It’s no wonder that forward-thinking companies like SAP, Facebook, and Visa are exploring the potential of stablecoins in their financial ecosystems.

Currently, stablecoins command about 10% of the entire cryptocurrency market, a testament to their growing appeal. Despite the hiccups during the 2022 cryptocurrency crash, stablecoins have bounced back, with their market capitalization and trading volumes nearing previous peaks. Today, 75% of digital asset owners have stablecoins in their portfolios, underscoring their vital role in the digital economy.

In the bustling world of business transactions, stablecoins shine as the unsung heroes, providing a seamless bridge between the reliability of traditional finance and the innovation of digital currency. For businesses looking to integrate seamless digital payments, consider exploring TransFi's Payments product, designed to enhance your payment operations with efficiency and security. Now, let’s dive deeper into the world of the two reigning champions: Tether (USDT) and USD Coin (USDC), and discover which one stands out as the ultimate choice for your business.

USDC vs. USDT: Key Features

The two largest stablecoins dominating the cryptocurrency market are Tether (USDT) and USD Coin (USDC). Together, these financial giants account for a staggering 86% of the entire stablecoin market cap. As of June 2024, Tether holds the crown with a market cap of approximately $83.2 billion, capturing 65% of the market. USD Coin follows as the second-largest, boasting a market cap of about $32.8 billion and representing 21% of the market​​.

Both Tether and USD Coin are categorized as fiat-collateralized stablecoins, often referred to as off-chain stablecoins. This classification means they are backed by reserves of traditional fiat currencies—in both cases, the US dollar. Issuers of these stablecoins ensure a 1:1 supply ratio by maintaining an equivalent amount of fiat currency for every stablecoin issued. This mechanism stabilizes the value of the stablecoin, keeping it pegged to the underlying fiat currency.

Tether (USDT)

Launched: July 2014 (originally as Realcoin)

Type: Fiat-collateralized

Pegged Currency: US dollar

Market Cap: $83.2 billion (as of June 2024)​

30-Day Average Trading Volume: $19.2 billion​

Primary Blockchains: Algorand, Avalanche, Ethereum, EOS, Liquid Network, Near, Omni, Polygon, Solana, Bitcoin Cash's Standard Ledger Protocol, Statemine, Statemint, Tezos, and Tron

Exchanges Listed: Present on 432 exchanges

About: Tether made history as the first stablecoin and continues to lead the market in both circulation and market capitalization. Managed by Tether Limited, USDT maintains its dollar peg through a 1:1 collateral ratio, ensuring that each USDT token is backed by an equivalent amount of fiat currency. Tether Limited asserts that every USDT in circulation is fully supported by actual fiat reserves. To bolster transparency, the company regularly publishes its reserve holdings on a dedicated transparency page​.

USD Coin (USDC)

Launched: September 2018

Type: Fiat-collateralized

Pegged Currency: US dollar

Market Cap: $32.8 billion (as of June 2024)​

30-Day Average Trading Volume: $4.8 billion​

Primary Blockchains: Ethereum, Algorand, Solana, and Stellar

Exchanges Listed: Present on 406 exchanges

About: USDC is issued by the Centre Consortium, founded by Circle and including members like Coinbase. USDC prides itself on transparency, with each coin backed by US dollars or other approved investments. Monthly attestations are provided by Grant Thornton, showcasing the exact reserves backing the issued USDC. Unlike Tether, USDC reserves are exclusively held in cash and short-term U.S. treasuries, which are regularly audited to ensure full backing​ (CoinGecko)​​ (CoinGecko)​.

Stability of Tether and USD Coin 

Tether (USDT) and USD Coin (USDC) have consistently demonstrated their ability to maintain parity with the US dollar, affirming their status as reliable financial instruments. This stability is reflected in their robust daily trading volumes and widespread adoption by major corporations and governments. 

However, there have been instances where these stablecoins have temporarily lost their dollar peg: 

Tether (USDT): 

October 2018: Dropped to $0.92 amid rumors of insufficient backing and withdrawal issues on the Bitfinex exchange. 

May 2022: Briefly fell to $0.9959, then again to $0.9975 a month later. 

USD Coin (USDC): 

March 2023: Dropped to $0.87 due to $3.3 billion of reserves held at the failed Silicon Valley Bank (SVB). This led to a significant redemption of over $1 billion in USDC, causing the price to slip. 

Despite these dips, both Tether and USD Coin have proven resilient, with their pegs typically restored within days. Such fluctuations, though minor, can have significant implications for businesses relying on them for payments or holding substantial amounts on their balance sheets

Regulatory Scrutiny and Transparency Issues 

Tether (USDT): Tether has faced ongoing criticism and regulatory fines for its lack of transparency regarding reserves. In early 2021, Tether was fined $18.5 million by the state of New York for damages and ordered to submit periodic reports of its reserves. Later that year, the US Commodity Futures Trading Commission imposed a $41 million penalty on Tether for making misleading statements about its dollar reserves . 

USD Coin (USDC): In contrast, USDC has maintained a relatively less controversial profile. However, in May 2021, concerns arose about the transparency and nature of the audits conducted on USDC's reserves. The Centre Consortium, overseeing USDC, faced scrutiny for their reserve verification practices, which were found to be attestations rather than full audits. 

Comparative Analysis: USDC vs. USDT 

Liquidity and Adoption: 

Tether (USDT): With a market cap of approximately $83.2 billion and a 30-day average trading volume of $19.2 billion, USDT offers deep liquidity and is widely used across numerous platforms. 

USD Coin (USDC): With a market cap of about $32.8 billion and a 30-day average trading volume of $4.8 billion, USDC provides substantial liquidity and is preferred by institutions for its transparency. 

Transparency and Trust: 

Tether (USDT): Despite being the market leader, Tether’s history of regulatory issues and lack of transparency regarding reserves has led to trust issues among some users. 

USD Coin (USDC): USDC is often viewed as more transparent, backed by regular audits and clear reserve reporting, which enhances trust among its users. 

Alternatives to Consider 

For businesses exploring alternatives to Tether and USD Coin, there are numerous stablecoins available, with nearly 100 options in the market. Notable alternatives include: 

Binance USD (BUSD), True USD (TUSD), Pax Dollar (USDP), and Gemini Dollar (GUSD): These fiat-collateralized stablecoins offer a bridge between traditional and cryptocurrency payment rails. 

Pax Gold (PAXG) and Tether Gold (XAUT): Gold-backed stablecoins that provide stability through a time-tested store of value. 

Algorithmic Stablecoins: Such as Dai (DAI), which use algorithms and smart contracts to maintain their value. However, these are generally more volatile and prone to market sell-offs, as evidenced by the collapse of TerraUSD in May 2022. 

Conclusion 

In the dynamic world of digital finance, Tether (USDT) and USD Coin (USDC) have established themselves as pivotal instruments for business transactions. Despite occasional stumbles in maintaining their dollar peg, both stablecoins have shown remarkable resilience and continue to be trusted by businesses worldwide. Tether, with its extensive liquidity and market reach, and USD Coin, known for its transparency and regulatory compliance, offer distinct advantages that can cater to different business needs. 

Businesses do not have to choose between USDT and USDC exclusively. By leveraging both, they can enjoy the benefits of enhanced liquidity and robust transparency, balancing the strengths of each stablecoin to mitigate individual risks. This dual approach ensures that businesses remain agile and responsive in a rapidly evolving financial landscape. 

In this era of digital transformation, Tether and USD Coin are not just stablecoins—they are the cornerstones of a new financial paradigm, empowering businesses to operate with unprecedented stability and flexibility. With platforms like TransFi at your service, the future of business transactions looks not only stable but exceptionally promising. 

TransFi Team

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