Two of the top 10 digital assets by market capitalization are stablecoins. In a sector of volatility, stablecoins offer a safe haven of stability in addition to a few other benefits. Both USD Coin (USDC) and Tether (USDT) are heavily used across both centralized and decentralized crypto markets, but which is the better stablecoin?
Before we can answer that, we’ll first discuss stablecoin use cases in order to help assess the utility of the two we’re looking to compare. Then we’ll look at how they’re backed before coming to a conclusion. Let’s jump in.
Stablecoin Use Cases
Volatility Hedge / Profit Lock
The most popular use for stablecoins is to use them to hedge against volatility and a way to lock in profits.
For the former, traders can use stablecoins as a way to avoid volatility in the market, especially in a bear market. If they feel a drop in the market is coming, they can convert their volatile assets, such as Bitcoin, into a stablecoin like USDC or USDT. This ensures that if they had $10k in value, they will still have at least that much in value if the market does drop.
Similarly, if a trader expects that a bear market or price drop is coming, they can just turn their assets into stablecoins. Then, they can try to buy back the unstable asset at a lower price once it does drop in value. This is sort of like shorting the market. If successful, you end up with more of the asset than you started with.
Let’s look at an example. If Bitcoin is trading at $40k per coin, but you expect it to drop to $35k within a certain period of time. You can trade that Bitcoin for $40k worth of stablecoins such as USDT or USDC. Then, when BTC does go down to $35k, you can buy it back but then have another $5k in stablecoins in profit.
This is why stablecoins are a good way to ensure profits are stable too. Rather than using profits to buy more volatile cryptocurrencies, keeping profit as a stablecoin ensures that it remains $5k in the above example. If instead of turning your profit into a stablecoin you choose to buy $5k more in BTC, then it’s possible that the value of the BTC drops below $5k. These are just some of the risks you have to assess as a profitable trader.
Cross-Border Payments / Remittances
Another popular use case for stablecoins is for cross-border payments or remittances. If you want to send USD to someone who lives outside the USA, the fees for sending stablecoins on a blockchain network are exponentially lower than if you were to send a fiat money transfer through Western Union, a bank, or another service. The stablecoins are also sent and received nearly instantaneously. There is no need to wait for settlement like through traditional methods. The ability to use stablecoins in this manner is extremely beneficial for those in countries where it’s difficult to send or receive money without being charged exorbitant amounts in fees and currency conversions.
Stablecoins are a useful way to pay those who work in the cryptocurrency sector. If you’re paying developers in the asset they are working with, such as paying a Solana developer in SOL, they could end up dumping their SOL when it’s time to pay bills. This could certainly negatively affect an asset’s value, especially newer ones.
Similarly, paying them in SOL could also result in a loss in value overnight due to the volatile nature of non-stablecoin assets. If this occurred as SOL dropped $10 in value over 24 hours, it would essentially mean they have been underpaid. So if you pay people in the sector in stablecoins you can provide stability to both the asset they are developing, and to the employee’s finances.
Comparing USDT and USDC Backing and Liquidity
The first USDT tokens were released in late 2014. At the time the CEO announced that every USDT token was 100% backed by US Dollars and could be redeemed at any time with no risk. This statement wasn’t true for a time, wherein the statement was retracted. Multiple years passed after its release without there ever being a comprehensive audit of Tether’s company and its reserves.
However, after FTX exchange collapsed, Tether was essentially forced to provide both a report of their own reserves and have a third-party audit. They ended up passing, and proved their reserves outnumbered their liabilities. This means that Tether can in fact be redeemed at any time by a verified Tether customer and that Tether can cover all their tokens if they were suddenly redeemed. This drastically reduces risks associated with owning USDT and makes it a solid choice as a stablecoin.
When it comes to liquidity, USDT is the most liquid of all, with over $80 billion in stablecoins across most centralized and decentralized cryptocurrency platforms.
USDC launched in 2018 but has never had the controversial backing the USDT did. It has always been backed at a 1:1 ratio of cash and equivalents, and it was launched by Coinbase Exchange in collaboration with Circle, the peer-to-peer payment provider.
While it hasn’t had the same success as USDT in terms of market cap, it still has over $20 billion in stablecoins and is the stablecoin of choice for Visa on the Solana blockchain network. It’s also expanding to more blockchains, with cross-chain transfers coming soon.
So, Which is the Better Stablecoin?
The reality is that which asset is the better stablecoin really comes down to personal preference. They’re never going to be worth more than the other, because they’re stablecoins. As long as it’s available on your blockchain network of choice, then it’s perfectly fine to use either one. Of course, if only one of them is available on your network, then that is the better stablecoin for your personal situation.