What is USDC?
USDC is a stablecoin run by a joint partnership between Circle and Coinbase. Most USDC is based on the Ethereum network, but the coin can also be transferred across the Algorand, Stellar and Solana blockchains.
Investors can mint USDC by passing a KYC (Know Your Customer) check and then depositing US dollars on Circle. They receive USDC tokens at a 1:1 ratio, and can then use the stabelcon within the Coinbase ecosystem, or further afield. If desired, the US dollars can be redeemed later by returning the USDC tokens and taking them out of circulation.
If the value of USDC strays over 1 dollar, the resulting arbitrage opportunity means that traders can swap US dollars for a token that is worth $1.01 or $1.02, for example.
This puts more USDC into circulation, making sure that the price returns quickly to a more even peg with the dollar.
The same dynamic also works in reverse, where investors would be incentivized to return USDC tokens that are worth less than a dollar and receive US Dollars which, in that situation, would be worth more.
This simple mechanism keeps the price of USDC stable. USDC is used as a mainstay of the Ethereum DeFi ecosystem, where it can be used to provide stable liquidity on Uniswap, or for lending / borrowing mechanisms on dApps (decentralized apps) such as Aave and Compound.
USDC vs USDT - Which is Better?
One thing going for USDC is that it is pegged 1:1 to actual US dollars, which are held in reserve bank accounts, and is subject to regular attestations to ensure that it stays this way.
USDC is generally well-trusted and respected around the space, and perhaps that’s why it was able to score a partnership with Visa and Crypto.com to allow payments to be settled in USDC right across the Visa payment network.
This was huge news for the entire crypto market, which responded by jumping up to all-time highs on the back of the news, when it was announced in March 2021.
Tether might have roughly 3x the amount of exchange liquidity and volume right now, but USDC seems to be the favorite of regulators in the US and, for this reason, definitely has the upper hand when it comes to future prospects.
It has been traditionally less clear which assets are backing Tether USDT, and the exchange has courted suspicion by having a murky relationship with the crypto exchange, Bitfinex.
After years of speculation and even investigation by the US Department of Justice, Tether has this year finally released a report with a breakdown of the assets that back up the USDT coin. Over 75% of these are liquid assets, and the rest are made up of secured loans, bonds, commodities and other investments including digital assets.
Tether’s pie chart which (kind of) explains how USDT is backed.
Within that 75% of liquid assets though, only 3.87% is actually listed as cash, whereas 65% of the total is made up rather vaguely of “commercial paper,” which are basically IOU notes made between financial institutions.
The Tether company is understandably keen to tell the world that the “Tether FUD” is solved and it’s time to move on, but considering how much time it took them to finally reveal their assets, this vagueness does not look good.
USDT may still be convenient for a quick trade, but for long-term holding or earning interest in lending/yield farming, USDC probably remains the best bet.