Market volatility is something that is inseparable from the Crypto industry. From Bitcoin to Shiba Inu, every possible token you can think of gets affected by this. At one time, these coins can get their prices to skyrocket, and at another, they can experience a significant downfall.
To fight these high price fluctuations, stablecoins have emerged as a Knight in shining armor. For investors who want to be a part of the Crypto ecosystem without taking much risk for their investments, stablecoins are a reliable way. They are pegged to an actual-world asset – usually the fiat money – because of which they offer resistance against price fluctuations to which other coins are vulnerable.
US Dollar is the currency to which the Cryptos are generally pegged. Both USD Coin (USDC) and Tether (USDT) are tied to USD and have emerged as the top stablecoins of the Crypto industry and are a part of all the leading Crypto exchanges worldwide.
In this article, let’s quickly learn the differences between USDC and USDT so you can choose which one is better for your investment.
Before we move forward, here’s a short introduction to stablecoins.
What are stablecoins?
Stablecoins are an asset class in Cryptos whose value is based on a reserve or external asset. This external asset is frequently a fiat currency, like the US dollar or the Indian rupee. Stablecoins are relatively well-liked substitutes for current Cryptos, and, as their name implies, they bring about “stability” in the Crypto sphere.
To learn about stablecoins in detail, you can read here.
Why are stablecoins mostly pegged to US Dollars?
In the Crypto market, there are many stablecoins, most of which are tied to US dollars. According to data from CoinGecko, 98% of the stablecoin volume is made up of USD-pegged stablecoins.
- The US dollar dominates the world when it comes to currencies.
The US dollar is the most prevalent currency for trading by central banks and other financial organizations worldwide. Additionally, the US dollar made up 60% of the world’s foreign reserves in 2021. It is also the currency used the most globally; the Euro comes in second.
- Stringent regulatory regulations of other fiat currencies.
Due to the negative interest rates and strict regulations, other currencies like the Euro and Swiss franc are considered less acceptable. For instance, the MiCA framework in Europe mandates that stablecoins be treated as e-money tokens and that anyone trading stablecoins must possess an e-money license. As a result, the people are compelled to keep cash or cash equivalents in the form of bonds or other financial instruments with the government.
Hope, you’ve got a fair idea about why the dollar is mostly pegged with stablecoins. Now, let’s learn the difference between USDC and USDT.
Difference between USDC Vs. USDT
Popular stablecoins USDT and USDC are both pegged to the USD. But that is the end of their similarities. Since it is backed by cash and cash equivalents, USDC is seen as a safer store of value despite having a lower trading volume than USDT. USDT is the most extensively used Crypto and is significantly more accessible than USDC. The main characteristics of both are listed in the following table:
|Value per coin||1 USD||1 USD|
What is USDC?
The USD Coin is a Crypto stablecoin, similar to USDT, backed by USD. It is pegged at 1:1 and is a tokenized representation of the US dollar. Since the USDC reserves are stored in segregated accounts with financial institutions governed by US law, it is the first Crypto that is entirely backed by a fiat currency.
Every time a transaction to purchase a USDC with fiat money is started, the fiat money is deposited and stored as 1 USD, after which a fresh USDC is minted. Additionally, if you trade USDC for USD, the stablecoin is burnt, and the money is returned in currency. As a result, the USDC maintains its 1:1 peg to the USD in this manner.
Centre, a financial technology organization, controls the USDC coin, and it can be used with different blockchains, including Ethereum, Algorand, Solana, and others.
Stability of USDC
The value of USD coins remains constant at $1. Like any other stablecoin, there will be small fluctuations in price, but these are swiftly corrected to bring the price back up to $1.
What is USDT?
To fill the gap between Cryptos and fiat, Hong Kong-based Tether Limited originally released the USDT in 2014. Tether provided consumers with a platform-independent, blockchain-based US Dollar that had many of the technological benefits of Bitcoin, Ethereum, and other Cryptos but none of their volatility.
Tether opened up the use case of Cryptos to remittances, payments, and more by combining the best of both worlds and creating a permissionless way to transfer Crypto dollars to anybody with speed, transparency, and low cost.
Stability of USDT
By design, the USDT’s dollar value will often remain constant at $1. So even if there may, from time to time, be small changes in the price of a few cents, the market quickly corrects itself to go back to its fixed price of $1.
Final thoughts: Which is a better investment option?
Despite the unstable market conditions, USDT and USDC have both been performing quite well. As a result, both coins are thought to be more beneficial for trading than any other crypto. As a result, you can think about investing in either USDT or USDC after conducting extensive research and monitoring market sentiments.Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.