USDT vs. USDC vs. BUSD: How Are They Different?
Stablecoins are cryptocurrencies whose values are pegged to a stable asset, mostly fiat currencies. Tether (USDT), USD Coin (USDC) and Binance USD (BUSD) are the three most popular stablecoins with a combined market cap of $140 billion. Stablecoins allow faster, lower-cost and safer transactions without the limitations associated with traditional banking, such as location-based restrictions and lack of financial services during holidays.
The global cryptocurrency market is forecasted to rise to above 4 trillion by 2030, or about 40% the marketcap of gold, proving the popularity of cryptocurrencies worldwide.
Stablecoin is a type of cryptocurrency that’s more reliable and less volatile than its high-profile counterparts like Ethereum and Bitcoin, which means there’s more significant potential for safer investments.
But which stablecoin should you trade? How does stablecoin compare to fiat currencies? Below, you’ll learn everything about stablecoin supplies and how they differ from each other.
What Are Stablecoins?
A stablecoin is a fiat-backed cryptocurrency that has its value associated with another asset class, like gold or fiat currencies, to keep the price stable.
According to Harvard Business Review, “True stablecoins are non-interest bearing coins designed to have stable value against a reference currency — say USD $1.”
Although mainstream crypto assets like Bitcoin are beneficial because you don’t need to trust an intermediary institution, they’re highly susceptible to price fluctuations.
Stablecoins eliminate this flaw by tying the currency’s value to another stable asset, mostly fiat currencies such as dollars or euros.
Secondly, the coin issuer has a “reserve” with assets that assure buyers the issuer can redeem the outstanding coins.
The first stablecoin was created in 2014 and named Tether. Most other stablecoins are modeled after Tether, with users receiving a single token for every dollar.
Theoretically, users can get their original currency—dollars—back at a one-for-one exchange rate. Initially, people used stablecoins to buy common cryptocurrencies, such as Bitcoin, as many exchanges didn’t have banking access.
Thus, stablecoins were a more reliable option since they’re available 24/7 worldwide and don’t require reliance on traditional banking channels. Plus, the money transfer is completed in a matter of seconds.
What Contributes to the Growth of Stablecoins?
The use of smart contracts gives rise to stablecoin. Unlike many other currencies, the code in a smart contract helps refine the agreements of a contract to facilitate the transfers, lending, payment of money seamlessly with limited human intervention.
Still, the primary factor fueling the popularity of stablecoins is their almost negligible volatility as compared to conventional cryptocurrencies. On top of that, industry partnerships also contribute to the growth of stablecoins.
For instance, in a recent corporate move, Visa partnered with Circle, the blockchain maestros behind USDC. Owing to this partnership, Circle corporate cardholders can spend their USDC stablecoin at merchants that accept Visa.
Even better, the U.S. Treasury Office of the Comptroller of the Currency released guidelines for banks to use stablecoins like USDC payments and public blockchains for banking activities.
Thus, federal savings associations and banking channels can now use blockchain for coins like USDC, just like SWIFT transfers or ACH.
The future seems bright for stablecoin holders since the currency may offer a widely accepted payment method to cut costs on data processing and international transfers. Moreover, banks may also use stablecoins to minimize the threat of digital challenges.
It’s also likely that digital wallets such as Cash App and Venmo —that have already enabled crypto purchasing recently — may use stablecoins in the future to make peer-to-peer payments a breeze.
Understanding USDT, USDC and BUSD
Although there are dozens of different stablecoins, the three most common ones include USDT, USDC and BUSD.
What Is USDT?
USDT (the symbol for Tether) is a stablecoin pegged to the US dollar at a 1:1 exchange rate. Thus, one USD is equal to one USDT. Buyers can spend, transfer or trade USDT as they would with their regular fiat currency. It is issued by iFinex, the Hong Kong-registered company that also owns the crypto exchange BitFinex.
Initially, USDT was created to tackle the following issues:
- Make national currency transfers easier
- Offer a more stable version of the volatile Bitcoin
- Provide users a method for checking
Tether is in the limelight as the third-biggest cryptocurrency in the world and continues to be the largest stablecoin by marketcap, in front of USDC.
However, USDT is known to be not transparent about their reserves. In 2019 they claimed every USDT is backed by one dollar in cash held by the company but in 2021, Tether (the company) was fined $41 million by the US Commodity Futures Trading Commission (CFTC). This was due to Tether’s false claims that its USDT Stablecoins are fully backed by real-world fiat money.
Tether has since had an audit in May 2021 and updated their website to include more details about their cash reserves, but what was shocking was that they only hold 2.9% of their reserves in cash back then. However as of this writing, this number has increased to over 5% in cash and they have been doing monthly transparency reports as well.
Although a few controversies surround Tether’s stability at $1, and the actual amounts of USD backing each USDT, there are still many reasons to prefer the coin over regular currency, as we will discuss below.
What Is USDC?
USDC is another stablecoin with its price pegged to the U.S. dollar. It was created by Circle Internet Financial to speed up funds transfer times and reduce volatility associated with Bitcoin and other cryptocurrencies.
As an Ethereum token, USDC can be stored in a wallet compatible with the blockchain. Besides facilitating transfers, USDC also allows users to benefit from higher yields when lending their stablecoins through different decentralized finance applications.
The popularity of the USD coin has increased significantly in the past few years, with a daily average of $2 billion sent through the Ethereum network in March 2021.
USDC also has monthly attestations to proof that they have equivalent amount of USD backing their USDC to assure investors that they are fully backed.
USDC has since expanded to more networks natively, from Algorand, Avalanche, Solana, Tron, Hedera, Polygon, and more, growing their adoption as crypto becomes multichain.
What Is BUSD?
Binance and Paxos founded BUSD to provide transactions with three important qualities: speed, flexibility and accessibility.
Simply put, Binance USD is a fiat-backed and regulated stablecoin with the same worth as a U.S. dollar. For every Binance USD someone buys, there’s a single dollar held in reserve. As the dollar’s price fluctuates, the stablecoin’s value also rises or falls.
BUSD holders can exchange their stablecoins for USD, and vice versa. Moreover, Binance USD exists on three blockchains: Binance Smart Chain, Ethereum and Binance Chain.
Therefore, BUSD holders can exchange stablecoins between these blockchains per their requirements. BUSD also has monthly attestations to proof that they have equivalent amount of USD backing their USDC to assure investors that they are fully backed.
USDC vs. USDT vs. BUSD: Differences
This table compares the differences between the three stablecoins that account for most of the stablecoin market.
|Blockchain||Ethereum, Solana, Tezos, Kusama, Algorand, Avalanche, Tron, Polygon, EOS, Liquid||Ethereum, Tron, Hedera, Stellar, Algorand, Solana, Avalanche, Flow, Polygon||Ethereum, Binance, Binance Smart Chain|
|Stablecoin Issuer||Tether||Circle||Binance and Paxos|
|Base Fiat Currency||U.S. dollar||U.S. dollar||U.S. dollar|
In recent times, Tether has started to lose marketcap against USDC, especially after UST was depegged. On 9 May, UST started to depeg and as investors worry about the risk of USDT, they starting selling it as well. Since then, USDT has lost $11 billion in market cap, a drop of about 15%, as holders began exchanging it with USDC instead along with some redeeming USDT into USD fiat. At one point on 12 May, USDT even depegged by around 4% on Binance, however it quickly recovered back to peg by the end of the day as redemptions were fully met and investors were reassured.
Due to this event, USDC market cap has went up from $49B to $54B, an increase of about 10% and are now only 30% from taking over USDT in market cap, coming a long way from just $4B in market cap at the start of 2021.
One of the significant differences between these stablecoins is their blockchains. A blockchain is a system that records transactions in a way that uses an immutable cryptographic signature to eliminate or minimize the risk of hacking or cheating the system.
Having different blockchains results in a variety of advantages, such as speed and utility of transactions. While USDT only runs on a single blockchain, USDC and BUSD have multiple blockchain options, allowing buyers to trade and transfer across them.
Although stablecoins achieve their price stability via collateralization of buying and selling the reference asset, they may fluctuate slightly from their token price, and then gradually return to the original value. USDT’s stability is quite reliable as the stablecoin has managed to remain steady at $1.
Similarly, Binance USD and USDC are also stable at $1.
However, controversy has arisen surrounding Tether’s claim that it has enough dollar reserves, while economists and investors suspect that it does not.
Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, worries that “A future crisis could easily be triggered as these [stablecoins] become a more important sector of the financial market unless we start regulating them and making sure that there’s actually a lot more stable stability to what’s being marketed to the general public as a stablecoin.”
But compared to USDT, USDC and BUSD are steady and devoid of controversy.
Stablecoin Supply and Volume
The volume of a stablecoin refers to the total trades occurring, while “liquidity” refers to the number of coins available for trading at the set price, which is $1 in this case. As the volume increases, typically the liquidity does too.
A stablecoin with a high volume makes it easier for investors to trade their coins. As of June 17, 2022, the trading volume for USDT is 50 billion, which is higher than that of the other two currencies. USDC has a volume of 5.8 billion, and the Binance USD stablecoin has a market volume of 5.1 billion. The total stablecoin supply peaked at 180 billion, and has started to drop and is now at 150 billion, among them, USDT remains the largest stablecoin by market cap with a total circulating supply of over 69B USDT. While USDC has a circulating supply of 54B USDC and BUSD has a supply of 17B BUSD.
Benefits of USDT, USDC and BUSD
Despite their differences, stablecoins have the following benefits:
- Quick Transactions: Deposits in fiat currencies can take one to four business days to show in your bank account. In today’s fast-paced world, that’s relatively slow. Meanwhile, stablecoin transactions are instant.
- Availability: Conventional banking channels aren’t available during the weekends or public holidays. But stablecoin exchanges are possible 24/7 — anywhere in any part of the world.
- Transaction Fees: Conventional transactions have high fees, especially international funds transfers. In contrast, stablecoins offer a low- or no-cost transaction method.
- Stability: Unlike other cryptocurrencies, such as Bitcoin or Dogecoin, the prices of stablecoins remain stable at the assets to which they’re pegged. For instance, if a stablecoin is pegged to euros, its price will remain the same as the fiat currency’s.
- Transparency: Most stablecoins are pretty transparent, allowing users to see that the issuers have enough assets in reserves to redeem them. For instance, Binance Coin is audited monthly by Withum, a renowned accounting firm.
- Safety: The blockchain technology makes transactions immensely secure, which is why many users consider stablecoins to be safer than traditional banking channels that are susceptible to hacking and malicious attacks.
The Uses of Stablecoins
Stablecoins such as USDC can be used for multiple purposes, such as storing value, accessing yield in the market enabled by blockchain, and payments. Here are some lucrative uses of stablecoins.
Trading Crypto Pairs
Typically, in cryptocurrency, “trending pairs” refer to assets that users can trade for one another through an exchange.
These pairs allow buyers to compare the costs of various digital assets. For instance, a BTC/USDT crypto pair will let you know how many USDT equals one BTC.
When you have stablecoins such as USDC and others in your possession and want to trade them, you can check for the pairing on the exchange. For example, if you have USDC, you may trade with a pairing on the exchange, such as BUSD.
DeFi Protocols for Lending
Since it employs a peer-to-peer model, everyone can connect irrespective of their location.
With DeFi lending, you can lend your stablecoins to a borrower and earn interest. This benefits both borrowers and lenders since users can get loans at much lower rates than if they used decentralized exchanges. Meanwhile, long-term investors can earn interest rates on the coins they lend.
With AMM DEXes (automated market maker decentralized exchanges) gaining popularity, users can provide liquidity with their USDC on their favourite pairs such as ETH-USDC and earn trading fees as well as other incentives.
Some of the most popular AMM DEXes include uniswap and sushiswap on the Ethereum network, generating millions in revenue for liquidity providers passively. However the downside is that liquidity providers may incur impermanent loss with their USDC.
The Future of Stablecoins
Due to the fallout of UST affecting thousands of users all over the world, and the lack of transparency in USDT which is the biggest stablecoin in crypto, regulations will likely be a big topic moving forward.
Stablecoins operate outside of the US's financial system and as they get bigger and more mainstream, policymakers and regulators will pay more attention to it to protect the average joe and prevent systemic risks.
The US federal reserve are also working on offering their own central bank digital currency (CBDC), and other nations are also developing them, and depending on how they view stablecoins, it could affect the entire crypto market in the future. With rising interest rates and high inflation all around the world especially in developing countries, a regulated USD stablecoin is likely to receive a lot of attention and adoption.
Which Stablecoin Should You Choose?
Although USDT has a higher market cap and volume, most economists, interestingly enough, may not consider it to be the best stablecoin. The reason behind this lack of trust is the gaps in transparency and auditing of USDT.
USDC and BUSD have greater transparency than USDT. Moreover, they’re comparable to USDT in terms of the exchange rate and blockchain. Thus, USDT is a better pick for people who prefer investing in a cryptocurrency with a higher volume and liquidity, while USDC and BUSD are preferable if you value transparency.
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The Bottom Line
Comprising almost 90% of the stablecoin market cap, USDC, USDT and BUSD are undoubtedly the ideal options for investors who want to dabble in the stablecoin market.
With Visa partnering with Circle, and vendors becoming comfortable with the idea of using stablecoins, the future of this cryptocurrency looks hopeful. So if you’re planning to jump on the bandwagon, now is the time to do so.