Stablecoins grew considerably last year, breaking the $20 billion market cap. Risk-averse investors flock to these coins because of their relative safety. Tether (USDT) and Coinbase’s USDC dominate the stablecoin market.
Currently, USDT makes up most of the market’s supply and value, with USDC lagging in second place. However, USDC has found a promising niche in decentralized exchanges.
What does that mean? Can USDC become the favorite stablecoin for investors one day?
What do you need to know about stablecoins?
Investopedia describes stablecoins perfectly: they’re crypto coins that use reserve assets to back their value. We can think about them as a combination between fiat and crypto.
As many know, fiat currencies are “technically” backed by gold or similar assets. They essentially act as statements of an individual’s ownership over a country’s gold reserve. These valuations allow fiat currencies to enjoy more stability than Bitcoin and other cryptocurrencies.
However, we must note that many currencies, like the US dollar, are no longer redeemable in gold. Does that mean stablecoins can be less volatile than fiat? Not exactly, but that’s primarily because of society being used to the currencies.
Different types of stablecoins
Experts categorize stablecoins based on what backs their value: fiat, assets, and even other cryptos. However, other stablecoins prevent price swings with algorithms like USDX. However, we’ll focus on the first three types.
- Fiat-backed stablecoins, like Tether and USDC, are redeemable for fiat currencies. Companies developing these coins need extensive dollar reserves, and they implement static exchange ratios.
- Cryptocurrency-backed coins are abstract for many. DAI is an excellent example since Ether backs it. Otherwise, they work just like fiat-backed coins, but they’re more volatile.
- Finally, coins like G-Coin anchor their value on external assets, such as gold. They’re encrypted versions of regular fiat currencies.
Why are they famous?
Supporters applaud the coins’ security regardless of crypto volatility. Their anchoring acts as insurance for investors, who can rest assured of their value. However, they still provide many features from cryptocurrencies.
Nevertheless, not everyone likes these coins, and that’s because of their concept. Detractors state that stablecoins’ work against the original purpose of cryptocurrencies.
USDC vs. Tether
These stablecoins are the most famous investment options in the market, but their differences are considerable. Tether has been synonymous with stablecoins because of its fame and demand, but USDC is quickly gaining traction.
While they’re still relative newcomers in the market, they already offer fantastic advantages. They allow you to enjoy blockchain’s efficiency without facing the same volatility as Bitcoin, Ether, and other cryptocurrencies.
But which one is better? That’s a complicated question because we must assess market demand, features, and accessibility.
USDC is famous because Coinbase powers it. It’s also the only stablecoin that’s accessible via Coinbase. It’s an ERC-20 token built on Ethereum’s blockchain.
It’s also regularly among the top coins in all exchanges, holding a considerable share of all stablecoins in the market. It’s backed by a 1:1 USD ratio in reserve bank accounts.
On the other hand, USDT is the biggest stablecoin, and it enjoys the best liquidity of all stablecoins. It’s also more liquid than Bitcoin, providing excellent trading benefits.
Because of its accessibility and anchoring, anyone can use it without worrying about considerable price shifts. However, it’s also one of the most controversial cryptocurrencies.
Which one should you use?
USDC’s main advantage over Tether, other than its lack of controversy, is its availability. It’s beloved by institutions using Coinbase, so it’s a lot more practical for B2B transactions.
USDT is better for trading and investors, so it somewhat fails as a stable coin. USDC could topple it because it’s better for most financial transactions.
On the flipside
- Many crypto investors enjoy trading because of the market’s volatility. Stablecoins often provide a significantly less attractive investment option for them, which reduces demand.
- Some experts question stablecoins’ transparency. For instance, Tether is often accused of not being honest about the alleged 100% USD backing for every USDT unit.
- Stablecoins’ concept requires investors to trust third parties who control the reserve. For most crypto experts, that’s what cryptocurrencies aim to avoid. Many argue that stablecoins are a terrible concept because they defeat the tech’s initial goal.