Tether vs. USD Coin: What’s the Difference, and Which Is Better?
Reading Time: 4 minutesThey’re two of the biggest and most popular stablecoins, but which one should you use?
In the world of cryptocurrency, only one asset can maintain a relatively solid price: stablecoins. There are many stablecoins, two of the most popular being Tether and USD Coin. But what similarities do these assets share, how do they differ, and which is better overall?
The Origins of Tether and USD Coin
Tether Limited Inc. was founded in July 2014 by Brock Pierce, Craig Sellars, and Reeve Collins, three Bitcoin enthusiasts. Tether was initially called ‘RealCoin,’ but adopted its current name in late 2014. In early 2015, Tether (USDT) became available for trading.
USD Coin, on the other hand, wasn’t formed by a handful of individuals. Rather, it originated in 2018 via a partnership between Coinbase, a popular crypto exchange, and Circle, a peer-to-peer payments company. This joint venture gave way to the Centre consortium, an open-sourced project that focuses on providing governance and standards for the digital economy.
Tether vs. USD Coin: The Basics
Tether and USD Coin are pegged to the price of the US dollar. This means that both assets are designed to always be as close in value to one US dollar as possible.
Tether and USD Coin are cryptocurrencies, so their price does fluctuate. But unlike typical assets, these fluctuations are often very minimal. For example, on a typical day, Tether and USD Coin will fluctuate in value by a ten-thousandth of a dollar ($0.0001). If these assets were to fluctuate by more than a fraction of one dollar, it is possible that USD Coin and Tether would lose their pegs.
When a stablecoin loses or gains too much, it is no longer stable and therefore loses its peg. This can happen with all kinds of stablecoins. But because Tether and USD Coin are backed by fiat money and commodities, they’re a little more reliable than stablecoins backed by cryptocurrency or stablecoins that use algorithms to maintain value.
USD Coin and Tether both offer higher transaction speeds than traditional currencies. However, Tether and USD Coin offer two drastically different block times depending on the kind of token you’re using. For example, TRC-20 (TRON blockchain) Tether tokens have a block time of just two minutes, whereas ERC-20 (Ethereum blockchain) Tether tokens have a block time of 14 minutes.
On the other hand, TRC-20 USD Coin tokens have a block time of just one minute, while ERC-20 USD Coin tokens have a block time of 14 minutes, just like ERC-20 Tether tokens.
Tether vs. USD Coin: Intentions
The Tether blockchain platform allows people to use cross-border financial services with a digital asset that can maintain its value like fiat currencies do. Tether also gives investors the ability to hold cryptocurrency without having to worry too much about the volatility that typical cryptos are exposed to.
Like Tether, you could consider USD Coin a digital dollar. It represents the value of a US dollar but is not a fiat currency tied to traditional banks. Both Tether and USD Coin are faster to transfer than traditional money, making them a more convenient option in many cases.
Tether vs. USD Coin: Collateral
Stablecoins are always a safer bet if they have collateral. Collateral is a kind of backup that comes in the form of another asset. It assures investors they won’t lose out if the asset they’ve bought collapses.
Tether is not backed by one kind of collateral. Rather, many different assets make up Tether’s reserve, including bonds, secured loans, precious metals, cash, cash equivalents, and other investments. However, Tether has received criticism for its alleged lack of transparency surrounding its financial reports and reserves, which you may want to consider when you consider investing in this asset.
Remember not to confuse Tether with Tether Gold (XAUT), a stablecoin pegged to and backed by one troy ounce of gold. USDT and XAUT are entirely different assets with different kinds of collateral.
USD Coin, on the other hand, is backed by cash and short-dated US treasuries, as stated by Circle. Though Circle has also faced some criticism over transparency, it provides more transparency than many other big stablecoins.
Tether vs. USD Coin: Availability
Because Tether and USD Coin are legitimate and popular assets, they’re both widely available on most centralized and decentralized crypto exchanges. Many of the biggest centralized crypto exchanges, including Binance, Coinbase, Kraken, and USD Coin, all support USDT and USDC trading.
Because Tether and USD Coin are ERC-20 tokens, they’re available to trade on a variety of decentralized exchanges, including Uniswap and Curve Finance.
Furthermore, many software and hardware cryptocurrency wallets support these assets, such as Exodus, Ledger, Atomic Wallet, and Trezor.
Tether and USD Coin are originally ERC-20 tokens built on the Ethereum blockchain, giving them more versatility throughout the market. This is a key reason why so many different wallets support them.
Tether vs. USD Coin: Risks
As with any cryptocurrency, there are risks associated with investing in both Tether and USD Coin. There’s no doubt that stablecoins are less exposed to volatility than regular cryptos like Bitcoin and Ethereum. However, stablecoins with their own reserves, such as Tether and USD Coin, can provide investors with a little more peace of mind.
But this does not mean that stablecoin investments are a guaranteed win. If the market crashes severely, stablecoins can lose their peg. Tether, for example, briefly lost its one-dollar peg in November 2022 amid the crypto crash fueled by FTX’s bankruptcy filing.
It should also be noted that both Tether and USD Coin are centralized assets. This means they are controlled by a small group of decision-makers, a model many in the crypto realm are not fond of. So, if you don’t want to put your trust in assets issued by centralized entities, these cryptocurrencies may not be for you.
The Verdict
There’s no denying that both Tether and USD Coin are legitimate stablecoins with a solid foothold in the crypto market. However, when it comes to choosing which is better, it’s important to note the factors discussed above.
For example, if transparency is an absolute must for you, USD Coin may be more suitable than Tether. Additionally, if it’s high transaction speeds you’re after, TRC-20 USDC tokens would give you the quickest block time. But if you want to use standard ERC-20 USDT or USDC tokens, you’re looking at the same speeds for each.
Tether and USD Coin are both pegged to the US dollar, are both widely available on a range of exchanges, and can both be exchanged for USD. Both assets are also centralized. Because these two stablecoins share so many similarities, you may find both to be suitable for you.
Tether and USD Coin Are Both Reputable Stablecoins
Tether and USD Coin currently sit at the top of the stablecoin market and are incredibly popular worldwide. With the ability to maintain a stable price and offer the assurance of reserves, these two assets give investors the ability to enter the crypto realm without exposing themselves to extreme volatility.