In the world of cryptocurrencies, only one asset can sustain a relatively strong price: stablecoins. There are many stablecoins, two of the most popular being Tether and USD Coin. But what similarities do these assets share, how are they different, and which one is better overall?
The origins of Tether and USD Coin
Tie Image Credit: Satheesh Sankaran/flickr
USD Coin Image Credit: Satheesh Sankaran/flickr
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, was not formed by a handful of individuals. Rather, it originated in 2018 through a partnership between Coinbase, a popular cryptocurrency exchange, and Circle, a peer-to-peer payments company. This joint venture gave way to the Center consortium, an open source project that focuses on providing governance and standards for the digital economy.
Tether vs. USD Coin: Basics
Tether and USD Coin are pegged to the price of the US dollar. This means that both assets are designed to always have a value as close to one US dollar as possible.
Tether and USD Coin are cryptocurrencies, so their price fluctuates. But unlike typical assets, these fluctuations are usually minimal. For example, on a typical day, Tether and USD Coin will fluctuate in value by one ten-thousandth of a dollar ($0.0001). If these assets fluctuate by more than a fraction of a dollar, USD Coin and Tether may 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 are slightly more reliable than crypto-backed stablecoins or stablecoins that use algorithms to hold value.
USD Coin and Tether offer higher transaction speeds than traditional coins. However, Tether and USD Coin offer two drastically different block times depending on the type of token you are using. For example, Tether TRC-20 tokens (TRON blockchain) have a block time of only two minutes, while Tether ERC-20 tokens (Ethereum blockchain) 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 hold its value like fiat currencies do. Tether also gives investors the ability to hold cryptocurrencies without having to worry too much about the volatility that typical cryptocurrencies are exposed to.
Like Tether, you could consider USD Coin as a digital dollar. It represents the value of one US dollar, but it 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: Guarantee
Stablecoins are always a safer bet if they have collateral. Collateral is a type of backing that comes in the form of another asset. It assures investors that they will not lose if the asset they have bought collapses.
Tether is not backed by any type of guarantee. Rather, many different assets make up Tether’s reserve, including bonds, collateralized loans, precious metals, cash, cash equivalents, and other investments. However, Tether has received criticism for its alleged lack of transparency around its financial reporting and reserves, which you may want to consider when considering investing in this asset.
Remember not to confuse Tether with Tether Gold (XAUT), a stablecoin pegged and backed by one troy ounce of gold. USDT and XAUT are completely different assets with different types of collateral.
USD Coin, on the other hand, is backed by cash and short-term US Treasuries, as declared by the circle. Although Circle has also faced some criticism about transparency, it provides more transparency than many other large stablecoins.
Tether vs. USD Coin: Availability
Because Tether and USD Coin are legitimate and popular assets, both are widely available on most centralized and decentralized crypto exchanges. Many of the largest centralized crypto exchanges, including Binance, Coinbase, Kraken, and USD Coin, support USDT and USDC trading.
Because Tether and USD Coin are ERC-20 tokens, they are available for trading on a variety of decentralized exchanges, including Uniswap and Curve Finance.
Additionally, 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 created on the Ethereum blockchain, giving them more versatility across 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 is no question that stablecoins are less exposed to volatility than regular cryptocurrencies like Bitcoin and Ethereum. However, stablecoins with their own reserves, such as Tether and USD Coin, can give investors a bit more peace of mind.
But this does not mean that stablecoin investments are a guaranteed win. If the market crashes severely, stablecoins may lose their peg. Tether, for example, briefly lost its $1 peg in November 2022 amid the cryptocurrency crash triggered by FTX’s bankruptcy filing.
It should also be noted that both Tether and USD Coin are centralized assets. This means that they are controlled by a small group of decision makers, a model that many in the cryptocurrency realm do not like. So if you don’t want to trust assets issued by centralized entities, these cryptocurrencies may not be for you.
The verdict
There is no denying that both Tether and USD Coin are legitimate stablecoins with a strong foothold in the cryptocurrency market. However, when it comes to choosing which one is better, it is important to keep the factors discussed above in mind.
For example, if transparency is an absolute must for you, USD Coin may be more suitable than Tether. Also, if it’s high transaction speeds you’re looking for, TRC-20 USDC tokens will give you the fastest 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 pegged to the US dollar, are widely available on a variety of exchanges, and can be exchanged for USD. Both assets are also centralized. Because these two stablecoins share so many similarities, they may both be right for you.
Tether and USD Coin are reputable stablecoins
Tether and USD Coin currently sit at the top of the stablecoin market and are incredibly popular around the world. With the ability to maintain a stable price and offer the security of reserves, these two assets give investors the ability to enter the world of cryptocurrencies without exposing themselves to extreme volatility.