- USDT vs. USDC
- What was the motivating factor for this event?
Stablecoins can be assets that are considered safe havens in a bear market for cryptocurrency. Investors need to protect capital when bears rule, and many believe that tokens that keep as close as $1 are the best way.
This was evident when the top 10 crypto assets by market capitalization saw three stablecoins take over placements during the crypto winter of 2022. While USDT has been one of the top three assets for a while, the Tether stablecoin remained at the top 10 in January 2021.
In this scenario, fifth place occupied by XRP now belongs to USDC, Circle’s stablecoin. The seventh position, which was occupied by Chainlink (LINK), is now Binance’s stablecoin, BUSD. Another factor has been attracting attention, however, as capital is expected to flow into the stablecoin in a falling market. USDC has performed better than USDT.
USDT vs. USDC
Recent trends have seen the top stablecoins in market capitalization and transfer volume rival each other. Although USDT is the top stablecoin in both market value and trading volume, it has been losing out in transfers to Circle’s stablecoin.
According to Glassnode data, USDC’s total transfer volumes exceeded USDT’s by almost five times between Oct. 8, 2022, and Jan. 10, 2023. Shortly after the collapse in FTX, there was a significant rise in transactions using the newer stablecoin.
What was the motivating factor for this event?
Some investors believe USDC is more secure than USDT in the crypto market. There are a few factors that have contributed to this conclusion in the blockchain sector.
First, USDT has a dark past. In the early years of USDT’s stability, it was unable to keep its dollar peg and was even attractive for arbitrage. But this was only one of its problems. Investors demanded proof that the stablecoin was USD-backed.
This evidence would prove that Tether, the stablecoin issuance, had sufficient cash to issue the USDTs. Despite USDC’s insistence, this audit didn’t take place.
Circle recognizes that this is a major problem for stablecoin investors. Circle is not only a company that focuses solely on laws and regulations but also has its monthly audits performed by Grant Thornton, a global accounting firm.
Tether’s association with Bitfinex, a crypto exchange, was another factor that helped to boost confidence in USDT. Investors wouldn’t have found this problematic if the information had not been kept secret and only made public with the Paradise Papers exposure.
USDC’s reserves for its stablecoins are what we focus on. USDC currently has 65% of its U.S. Treasury bonds reserves. Tether, on other hand, was affected by the collapse of USTC (Earth’s stablecoin), and decided to increase USDT’s ballast in 2022 and eliminate guaranteed loans.