While all three tokens try to maintain the price peg with the US dollar, they achieve this in different ways.
USDT and USDC are centralized stablecoins, with the token supply and price-peg mechanism being implemented by centralized entities. Elsewhere, DAI is completely decentralized and is governed by a DAO.
All of the three tokens are backed by collateral. USDT and USDC are fiat-backed stablecoins based on a 1:1 ratio, while DAI relies on an overcollateralized system implemented by Ethereum-based algorithms.
While USDT and USDC tokens use similar methods, the latter is regarded as a more reliable option, with Circle complying with US regulations and being more transparent. The monthly attestation from Deloitte reflects USD Coin’s transparency.
🍒 Though referred to as stable ‘coins’, these cryptocurrencies are actually tokens. Coins vs Tokens
USDT vs USDC vs DAI: Which is Best?
It depends on the context. USDT is the most popular option, but holding large values in this token is not recommended due to doubts regarding its true reserves and frequent un-pegging. USDC is a more reliable token. Also, USDC is more suitable for business use cases, with Circle offering API products that can be integrated easily.
If you don’t want to deal with centralized entities and are an ardent fan of absolute decentralization, then DAI is the right stablecoin for you.
🍒 In 2023, PayPay launched PYUSD. Learn how the latest stablecoin works here!
USDT, also known as Tether, is a stablecoin issued by Tether Limited. It was launched in 2014 and is the oldest major stablecoin in existence. Today, USDT is by far the largest stablecoin by market cap, with over $83 billion as of August 24. It follows right after BTC and ETH.
USDT initially launched on the Bitcoin blockchain through a dedicated software layer called Omni. Eventually, the stablecoin moved to other chains, including Ethereum, Tron, and EOS. Ethereum and Tron are currently the largest markets for Tether.
How does USDT work?
USDT falls under the category of centralized collateralized stablecoins, meaning that the company behind it, Tether Limited, holds traditional cash and equivalents in reserves to back the value of the coin. It mints new USDT tokens when users deposit fiat dollars and burns tokens when users sell them, maintaining the parity between the value of tokens and reserves.
However, Tether has been surrounded by controversy for years, with market participants and regulators scrutinizing the company’s claims that the tokens are fully backed by USD reserves. In 2014, the US Commodity Futures Trading Commission (CFTC) fined Tether after it had found that it held less than 30% in cash reserves to back the token. The company now offers a ‘Transparency’ page to demonstrate its commitment.
What Is USD Coin USDC?
USD Coin (USDC) is another major collateralized dollar stablecoin. It was launched in 2018 by the Centre Consortium, a joint venture between fintech company Circle and US-based crypto exchange Coinbase. Circle acts as the issuer and is responsible for implementing and maintaining the price-pegging mechanism.
Circle is registered with the Financial Crimes Enforcement Network (FinCEN) – a bureau of the US Department of Treasury – as a Money Services Business. Also, it is licensed as a money transmitter in several US states.
USD Coin, currently a $26 billion market, launched on Ethereum, but it eventually became a multi-chain asset after moving to other Solana, Avalanche, Algorand, Tron, Stellar, Hedera, Flow, and, Arbitrum and Polygon.
How Does USDC Work?
As a centralized collateralized stablecoin, USDC relies on the same principles as Tether: it holds traditional assets in reserves, making sure that their value must coincide with its stablecoin market. Still, Circle is regarded as being more transparent and reliable. USDC reserves, which include 80% of short-term US Treasuries and 20% of cash, are attested by Deloitte, one of the Big Four accounting firms. It performs audits on a monthly basis.
