According to the latest Motley Fool research on stablecoins, Tether (USDT 0.01%) and USDC (USDC 0.01%) account for a whopping 90% of the value of the global stablecoin market. So, if you're choosing between two stablecoins, it probably comes down to a choice of Tether vs. USDC.
But which one to pick? There are several key factors to keep in mind when buying stablecoins. Let's take a closer look.
Stablecoins are not investments
First of all, it's important not to view either Tether or USDC as a typical investment. Both trade for exactly $1, and 30 years from now, both will trade for exactly $1. That's what makes them stablecoins.
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Stablecoins are pegged 1:1 to the value of the U.S. dollar, and are designed to be used as "digital dollars." Thus, from a pure investment perspective, there's no clear-cut reason to choose between Tether and USDC.
Which stablecoin has greater utility for investors?
So we're going to need another reason to pick between the two. For many investors, it all boils down to "utility." In other words, how can they use these stablecoins to accomplish certain tasks in the blockchain and crypto world?
For example, let's say you're a high-frequency crypto trader, rapidly swapping into and out of various cryptocurrencies. In that case, you might prefer Tether. It offers greater liquidity than USDC, and hence, less "wiggle" around the dollar peg. Over time, your trading costs will likely be lower with Tether.
However, if you're a long-term buy-and-hold investor, that likely does not matter to you at all. Instead, you might be interested in yield. Think of stablecoins as digital dollars that can be invested in yield-bearing protocols on the blockchain. Just as your real-world dollars can earn a small yield by placing them with banks, your digital dollars can earn a small yield by placing them on the blockchain.
Here, it really pays to shop for the best deals possible. For example, if you're a Coinbase Global (COIN +2.21%) customer, you can earn 3.85% on your USDC that you hold on the trading platform. But Coinbase offers a 0% yield on Tether, thereby encouraging customers to hold USDC instead. This makes sense, given that Coinbase has a strategic partnership with Circle Internet Group (CRCL 1.52%), the issuer of USDC.
NYSE: CRCL
Key Data Points
Another factor to consider is how easy it is to use your stablecoins for everyday purchases. After all, if stablecoins really are digital dollars, shouldn't you be able to use them just like real-world dollars anytime you check out online?
Here's where USDC has a decided advantage over Tether, at least for U.S. users. Coinbase recently rolled out a new "pay with USDC" solution for online merchants, encouraging them to accept USDC at the point of sale. An early test case was Shopify (SHOP +0.87%), which announced a deal with Coinbase in June.
Not all stablecoins are created alike
Finally, it's worth considering stablecoins from a regulatory and legal perspective. Here's where USDC also has a decided advantage over Tether. That's due in large part to the much greater transparency that USDC offers into its reserves. Circle provides weekly updates and monthly attestation reports on USDC, while Tether only provides quarterly updates.
Moreover, Circle provides superior backing for its USDC stablecoin. Keep in mind: in order to maintain a dollar peg at all times, a stablecoin must be backed by cash or cash equivalents.
In the past, Tether has played fast-and-loose with what these "cash equivalents" can include, even going so far as to count commercial paper and other cryptocurrencies in this category. And it has also run afoul of U.S. regulators and New York State legal authorities for misstating the value of its reserves.
So, if peace of mind is important to you, USDC is the clear pick here. Institutional investors, too, appear to display a clear preference for USDC, simply due to the regulatory compliance issues they face.
USDC is issued by a U.S.-based company, and is fully compliant with the new Genius Act that outlines a framework for regulating stablecoins. By way of comparison, Tether is issued by an offshore company, and is not yet fully compliant with the Genius Act.
And the winner is...
Based on the above, the clear winner is USDC. It has greater utility for U.S.-based investors, and offers greater transparency and less regulatory risk. If you are looking to move your physical dollars into digital dollars, then USDC is worth a closer look.
