Hello friends, today PASA is here to talk about USDT and USDC.
These two names look very similar, and both are stablecoins pegged to the US dollar. Why is there still a price difference between them? What are the differences and characteristics of each?
Stablecoins Pegged to the US Dollar
USDT and USDC are both stablecoins pegged to the US dollar, exchanging at 1:1 with the dollar.
For every "minted" USDT/USDC, there is 1 dollar backing it up, so that when the USDT/USDC is "destroyed" later, the 1 dollar is returned to you.
Imagine the scenario of an arcade, when you enter the arcade, 1 yuan exchanges for 1 game coin, this is "minting", turning your 1 yuan into that game coin; when you leave the arcade and stop playing, you exchange the game coin back into yuan, this process is "burning", destroying that game coin back into yuan, returning the game coin to the owner, and the owner returns the money to you.
What is the biggest risk here? It is the misappropriation of funds.
The arcade owner claims his game coins exchange 1:1 with yuan, so if he "mints" 200 game coins, he should have 200 yuan backing them up, so that people who come to exchange can always get their money out.
However, if he does something bad, misusing funds. He minted 200 game coins, there should have been 200 yuan behind them, but he secretly spent 100 yuan, at this point he should destroy 100 game coins to balance, but he didn't, now 200 game coins only correspond to 100 yuan, if the holders of the game coins don't know, small exchanges can still operate normally, but once a bank run occurs, those who exchange late won't be able to get their money.
So for stablecoins pegged to a certain asset, the assets behind the issuer are the key factor in whether the stablecoin is stable.
What are the underlying assets?
The quantity, type, and transparency of the assets behind a stablecoin are important considerations for the safety of the "game coin".
The quantity of assets, the standard is to exceed the number of stablecoins issued, so as to ensure 1:1 exchange, and there will be no risk of bank runs.
The type of assets, usually requires assets to be highly liquid, such as cash, short-term government bonds, gold, etc. If it's stocks which are more volatile, they are considered less safe.
Transparency mainly refers to whether third-party audits are accepted, whether asset details are published, allowing the public to clearly understand the asset situation.
For USDT and USDC, the general view is that USDC's asset transparency is somewhat better, while USDT has better depth on exchanges.
Let's take a look at each.
USDC
Asset Quantity
As of January 30, 2025, there are 53 billion USDC in circulation, corresponding to 53.2 billion dollars in asset reserves.
Of the reserve assets, 6.3 billion is cash stored in banks, the rest 46.9 billion is in the reserve fund (Circle Reserve Fund).
Here is the link to the reserve fund, where we can check the daily asset situation
https://www.blackrock.com/cash/en-us/products/329365/circle-reserve-fund
This fund can be understood as an investment portfolio, currently around 48 billion in size, with an annual return rate of about 4.27%,
Average Maturity and Average Life are both 15 days, I understand this means the average maturity date of the held assets is 15 days. Roughly understood as this 48 billion in assets being put into a 15-day fixed deposit.
Asset Type
Looking at the holdings, the main parts are:
One is Treasury Bills (T-Bills, short-term US government bonds)
Two is Tri-Party Repo (tri-party repurchase agreements)
Short-term US government bonds, the bonds of the world's most powerful economy, are high in credit rating and liquidity in the market, safe and stable to exchange into dollars.
Tri-party repurchase agreements are a short-term financing tool, where institutions exchange bonds (such as T-Bills) for cash, usually with a bank or clearing institution acting as an intermediary to ensure transaction safety. For USDC issuer Circle, it means they mortgage short-term government bonds to different banks to obtain cash. Multiple tri-party institutions are to diversify risks, and different institutions have different interest rates, which will improve Circle's fund utilization rate.
Transparency
Deloitte audits the assets monthly and issues a report, proving that the total assets are greater than or equal to the number of stablecoins issued. The audit report can be found here https://www.circle.com/transparency
And the fund is also under the regulation of the SEC.
USDT
Asset Quantity
For Tether, the token circulation scale is much larger than USDC, reaching 141.1 billion, with asset reserves of 143.7 billion dollars.
Asset Type
However, compared to USDC's nearly 100% cash and cash equivalents, USDT's reserve assets also include 18% "high-risk" assets, such as corporate bonds, gold, bitcoin, and even secured loans, totaling 25.4 billion dollars.
Data source: Tether's 2024 audit report
https://assets.ctfassets.net/vyse88cgwfbl/6L2yLNnLltcCP6ZcTxJrll/aea0ec279fea08637445c8be57f63d87/ISAE_3000R_-_Opinion_on_Tether_Consolidated_Financials_Figures_31.12.2024.pdf
USDT has a larger issuance volume and asset scale, and because it has nearly 20% high-risk assets in its reserve assets, the overall return rate is also higher.
Transparency
In terms of asset transparency, USDC indeed has an edge, with Deloitte's monthly audits and transparent holdings under SEC regulation.
But Tether also has independent audit firms providing quarterly audits for its company.
Why is there still a price difference between stablecoins?
Exchanging USDT for USDC on exchanges is not always 1:1, there will be slight price fluctuations.
They are both stablecoins, both pegged 1:1 to the dollar, why is there a price difference?
To summarize the answer to this question: prices fluctuate around value, prices are determined by supply and demand.
Prices fluctuate around value, there may be a premium but it won't be very high, even if the price is undervalued it won't be very outrageous, due to the certainty of being pegged to the dollar, so prices fluctuate within a very small range.
The reason for the fluctuation is due to changes in supply and demand.
USDT is used more on exchanges, USDC is used more in on-chain Defi.
When there is a market on the chain, and people transfer out from exchanges to buy USDC, USDC may appear at a premium, and vice versa, there will also be market fluctuations.
Because the public generally believes that USDC's assets are more transparent and safe, when a major crisis occurs, such as the FTX explosion, assets tend to be risk-averse, so USDT may experience a short-term price drop.
However, if you carefully read the asset statistics of the two above, you will find that USDC is backed by 100% cash equivalents, and USDT is backed by 80% cash equivalents. This ratio is already very high, so there shouldn't be too much of a problem.
