USDC vs. USDt: Battle for DeFi Supremacy

August 25, 2023
7 min read

Centralized stablecoins, such as Tether's USDt and Circle's USDC, bridge the gap between government-issued ‘fiat’ money and digital assets. The supply and monetary policy of fiat money is influenced by centralized institutions like central banks, which require users to trust them. In contrast, the decentralized financial (DeFi) system empowers users with direct ownership, control, and the responsibility to manage their assets.

Today, stablecoins like USDt and USDC represent approximately 10% of the total crypto market cap, with significant activity on the Ethereum ecosystem. However, other ecosystems, like Cosmos, are rapidly evolving and integrating these stablecoins, offering unique value to builders and investors.

Cosmos, with its recent integration of USDt through the Kava Chain, exemplifies this trend. Native stablecoins like USDt on Cosmos offer simplicity, cost-effectiveness, and enhanced security compared to bridged stablecoins. This integration combines the speed and interoperability of Cosmos with the developer power of Ethereum, unlocking stablecoin liquidity and unifying fragmented liquidity across various stablecoin versions.

This article delves into the differences between USDC and USDt, highlighting why many in the DeFi community are gravitating towards USDt, especially with its integration on platforms like Cosmos.  

Let’s dive in.

USDC vs. USDt: DeFi Assessment

While Tether’s USDt and Circle’s USDC both peg to the US dollar and originated on Ethereum, they have distinct differences. It's essential for DeFi builders and users to grasp these differences, especially when considering significant investments.

Takeaways for DeFi users

  • USDt's longer presence in the market suggests its proven track record, potentially offering more opportunities and liquidity when trading.
  • The flexibility and options provided by USDt's support for multiple chains can be beneficial, especially for cross-chain trading strategies.
  • The diversified collateralization of USDt might appeal to those valuing financial freedom and autonomy, indicating a broader base and less reliance on traditional financial systems.

Takeaways for DeFi builders:

  • USDC's rapid growth in a shorter timeframe indicates a dynamic and evolving landscape, presenting potential opportunities for innovation.
  • The number of supported chains by USDt offers more platforms to develop on, reaching a broader user base.
  • While USDt's quarterly audits are commendable, the more frequent attestations of USDC might resonate more with those valuing collaboration and openness.
  • The stability and trust associated with USDC's government-backed assets can be appealing, especially when developing solutions requiring robust and reliable backing.

The collateral structures of USDt and USDC provide insights into their priorities. USDt's inclusion of precious metals indicates a hedge against potential fiat currency depreciation, while USDC's reliance on U.S. Treasury Securities and Repurchase Agreements shows trust in traditional financial instruments.

Value Comes Down to Values

The way each stablecoin issuer structures its collateral, shows the different values that govern its priorities.  Depending on what you want to do and your values, you may find either USDt or USDC more appealing.

USDt's inclusion of precious metals in its reserves suggests a defensive stance against potential fiat currency depreciation. Precious metals, especially gold, is viewed as a safeguard against economic instability. On the other hand, USDC's absence of such assets indicates more unwavering confidence in the long-term stability of the U.S. dollar or a conscious choice to stay aligned with traditional financial assets.

USDC's heavy reliance on U.S. Treasury Securities and Repurchase Agreements underscores a significant trust in the U.S. government's financial instruments. These assets are generally perceived as low-risk, indicating Circle's conservative approach to ensuring stability. In contrast, while USDt does hold considerable cash and equivalents, its more diversified portfolio points to a broader distribution of the trust, potentially hedging against vulnerabilities in the traditional financial system.

Finally, USDt's portfolio includes bitcoin, signaling an openness to the potential (and volatility) of 

cryptocurrencies. This choice reflects a belief in the long-term value and integration of digital assets in the financial landscape. On the other hand, USDC's omission of any crypto assets from its listed collateral shows a more cautious stance, aiming to maintain a stable peg by avoiding the unpredictable nature of crypto markets.

The way each stablecoin is collateralized reveals the underlying values that drive its operations and hints at the direction the issuer is likely to head in the future. Depending on individual priorities and beliefs, users and builders might find the stablecoin that aligns with their own values when their choice of ideal DeFi stablecoin.

Native USDt Arrives On Cosmos

The introduction of USDt to the Cosmos through the Kava Chain marks a significant milestone for Cosmos builders and users. As one of the most dominant stablecoins in the DeFi space, native USDt that can interoperate between the Cosmos and Ethereum ecosystems resolves the fragmented liquidity for users and provides builders with a canonical stablecoin they can rely on. 

While USDC has its merits, the dominance and widespread adoption of USDt can't be overlooked. Its arrival on Cosmos, via the Kava Chain can attract a larger DeFi user base, which can lead to increased transaction volume, more dApp development, and a broader spectrum of projects including games and NFTs in the future.

For users, native USDt on the Kava Chain means more liquidity, better price stability, and a trusted stablecoin to hedge against market volatility. They can engage in lending, borrowing, staking, and other DeFi activities with greater confidence. Builders, on the other hand, can leverage USDt's popularity to design innovative multi-chain applications, tapping into a larger audience and fostering cross-chain collaborations.

The choice between USDt and USDC ultimately depends on individual preferences and goals, but if you are looking to be among the first to explore Cosmos DeFi, native USDt issued on the Kava Chain is the way to go.

Supply USDt on Kava today and take advantage of the early adopter rewards.