When it comes to stablecoins, the first thing that comes to mind for many people is USDT. USDT, also known as Tether, is a token Tether USD based on the stable value currency USD (USD) launched by Tether, that is, a virtual currency that links cryptocurrency to the legal currency USD. Another stablecoin pegged to the USD is USDC. Both of them have an absolute dominant position in the stablecoin market and can be seen in almost all major cryptocurrency exchanges, wallets and applications.
1. What is USDT?
USDT is a stable cryptocurrency first issued by Hong Kong-based Tether Limited in 2014. It aims to build a bridge between cryptocurrency and fiat currency. It has high liquidity but no volatility. According to Tether's introduction to USDT, USDT strictly adheres to the 1:1 reserve guarantee, that is, for every USDT token issued, its bank account will have a fund guarantee of $1. USDT is a type of encrypted digital currency that can be transferred, stored and consumed in wallets and trading platforms. But its special feature is that USDT is anchored to the US dollar at a ratio of 1:1.
Although USDT is still the world's largest stablecoin, its market share is no longer as high as before. According to Messari data, USDT's market value in the stablecoin market has dropped to around 50%, while USDC has rapidly risen due to its transparency and security, becoming the main stablecoin on the Ethereum chain.
2. What is USDC?
USDC is issued by Circle, a company invested by Bitmain, Goldman Sachs, IDG, CICC, Everbright and Baidu. It is a fully collateralized US dollar stablecoin. Professional services firm Grant Thornton publicly reports the financial status of USDC issued by Circle on a monthly basis.
Circle, the issuing company behind USDC, currently holds payment licenses in all U.S. states except Hawaii, the United Kingdom, and the European Union, as well as a New York State BitLicense. It is the company with the largest number of licenses in the cryptocurrency industry worldwide, and has compliant channels for the entry and exit of cryptocurrency assets in U.S. dollars, British pounds, and euros.
Unlike USDT, which has only one issuer, Tether, USDC can be issued and redeemed by other member institutions of the central network. But its issuers need to meet licensing, compliance, accounting, and technical and operational requirements. In order to ensure that USDC maintains stable one-to-one support, the issuer must also support all tokens with fiat currency reserves and provide proof of reserves every month. According to Circle's latest reserve account report in May 2021, the total number of USDC stablecoins in circulation is US$22.18 billion, while the total reserves are US$22.2 billion, second only to USDT, making it the world's second largest stablecoin.
3. Comparison between USDT and USDC
(1) Transparency comparison
Thether Limited wrote in the USDT white paper:
“Tethers is a digital currency pegged to fiat currency. All Tethers are first issued as tokens on the Bitcoin blockchain through the Omni Layer protocol. Each Tether issued and circulated is pegged to the US dollar at a one-to-one ratio, and the corresponding total amount of US dollars is stored in Tether Limited in Hong Kong (that is, one Tether coin is one US dollar). According to the terms of service of Tether Limited, holders can redeem/exchange Tethers for their equivalent fiat currency, or exchange them for Bitcoin.”
Thether Limited claims that the price of Tether is always linked to the price of legal tender, and the amount of its legal tender reserves is always greater than or equal to the amount of currency in circulation. But what is the real situation, I am afraid only Thether Limited knows. In April 2019, Tether's lawyers admitted to the public that in the bank account supporting the digital asset, there is no corresponding dollar for each Tether issued. A US government agency also pointed out that the reserve of USDT in a certain period was only 70%. In short, USDT has never made public an audit report, which is also the point where USDT is currently criticized.
Circle, the issuer of USDC, promised that the professional accounting firm Grant Thornton would publicly report its financial status, which is more transparent than USDT. For every USDC purchased by a user, Circle will deposit 1 USD in a designated bank (Silvergate) and issue the minted USDC to the user, thus ensuring that the storage volume of its pegged coin is equal to the amount of coins in circulation. This is another major reason why USDC is currently so popular.
(2) Transaction comparison
Both USDT and USDC are popular choices for use as trading pairs in DeFi (decentralized finance) protocols. Due to USDT’s 4-year head start, USDT has long been the most widely used stablecoin and still has the highest sustained trading volume in the stablecoin market to this day.
However, USDC has narrowed the gap with USDT to a certain extent due to its greater transparency and security. It can now be used on many of the same blockchains as Tether, and has even surpassed USDT on some online platforms, the most typical of which is Coinbase. As one of the earliest digital currency exchanges listed in the United States, the only stablecoin supported by Coinbase is USDC.
Stablecoins provide the ability to resist the volatility that other currencies are prone to, and the market also gives customers the right to choose multiple stablecoins. Although USDT is still the leader in the stablecoin market with a total supply of more than $64 billion, USDC's share of the total stablecoin supply is growing due to its more transparent audit mechanism.
