Should You Hold Your Fiat In USDT or USDC?

usdc vs usdt

While nobody in crypto is particularly a fan of Fiat currencies, there’s a real need for a stablecoin to hide in when you expect a market downturn or simply while trading in and out of various cryptocurrencies — and while there’s DAI it currently does not have the technology or stability for this particularly use-case.

Really there’s only USDT, USDC, Actual Fiat, and T-USD — but in truth T-USD’s volume and exchange listings is too sparse to be a real option, and actual fiat causes problems when it comes to transferring between exchanges and numerous other issues such as only being available on higher-commission taking exchanges, only on KYC-requiring exchanges, and exchanges that generally do not have many alt-coins on them.

As a result there’s only two real choices — USDT and USDC, one that is backed by the Tether Ltd. the other backed by Coinbase.

In this article we’ll cover the differences between the two coins, and which coin we personally use and why we use it instead of the other. To Summarize – We use USDC as it’s actually been and continues to be audited, and thus is far safer than USDT as we know Coinbase is solvent and has the funds while we truthfully have no idea if Tether has sufficient Tether to back up the tokens they’ve issued — but the latest audit we’re aware of, the only audit of tether, showed that they only had 70% -> 75% of the USD they should to cover all the tether they’ve issued.

Is USDT or USDC Safer?

In terms of technology they’re essentially exactly the same — they’re centralized tokens developed on the decentralized Ethereum blockchain. Nobody is going to reach into your Ethereum Wallet, or into the Exchange wallet and take USDT easier than USDC or vise versa.

However when it comes to the fundamentals of the coins, we’d safe USDC is safer — although not as much as the USDT-haters may lead you to believe.

We say this because USDC is “manufactured” by one of the largest cryptocurrency exchanges in the world that has excellent security and profitability — and more importantly — is audited frequently to ensure their solvency. This includes audits on usdc, ensuring that they have sufficient deposits to back every usdc coin that’s currently in circulation.

Meanwhile USDT has has had suspicious incidents in the past that makes people believe they actively have stopped audits from taking place — and as a result that they must not be solvent and have adequate USD reserves for all the tokens they’ve issued. New information revealed by in the only tether audit we’re aware of showed that they only have around 70% -> 75% of the USD to cover the USDT coins they’ve issued.

Overall it’s clear that, knowing the history and transparency of both of these companies, that USDC is clearly safer and a better choice now that they’re listed on binance and have trading pairs with most relevant cryptocurrencies. 

Is USDT Unsafe Since It's not 100% Backed by USD?

While many people would say this — we won’t. Most banks don’t even have 10% yet alone 70% of their deposits redeemable for cash. It’s unlikely Tether actually goes bust or declines significantly — at least in the short-term. In the long-term it definitely will, but it’s not a real threat today or next week.

Overall if you MUST trade into USDT to trade the altcoins you want from a stable-coin, then go for it — we’d just avoid holding USDT overnight or for long periods of time such as during a market correction. Instead opt for putting it in the far safer, trustworthy, and audited stablecoin called USDC.

Is USDC Unsafe Because it's not FDIC-insured?

I don’t know how to sugar coat this — but FDIC doesn’t have enough deposits to cover banks in case of a bank run — yet alone a collapse, so really FDIC-insurance is nothing more than feel-good worthless bragging rights regular US-banks use to provide a false sense of security.

No, USDC is not FDIC-insured — but this would only be an issue if Coinbase goes out of business, which should never happen due to them having crypto to hedge their dollars, low operating expenses, and excellent security (cold-storage) for their cryptocurrency deposits — not to mention expensive insurance to cover those in case of theft/hacking.

The only real risk to holding USDC, particularly in the long-term, is that the US Dollar isn’t backed by anything it’s self and could lose it’s value in relation to crypto or anything somewhat “real,” but this is the nature of fiat currencies — ultimately this is why we personally hedge our investment portfolio with cryptocurrency.

Where Should USDC/USDT be Kept?

Personally while we don’t hold much USDC or USDT, or any stablecoin for that matter, including decentralized ones like DAI, for reasons we outlined above, we’d say the best place to keep such assets depend on your purpose in keeping them. If you’re day-trading using them then obviously they’ll need to be on an exchange or def-connected wallet to allow you to make trades at a moments notice.

However if your reason for holding stablecoins isn’t daytrading, then there are better alternatives — namely lending them out on interest-bearing platforms such as Celsius or BlockFi, which give you a yield of 8% -> 14% annually on stable-coin deposits, not to mention offer pretty good signup bonuses, $40 bonus in BTC when signing up to Celsius and between $15 and $250 depending on your initial deposit (generally around $20-$40, when signing up for BlockFi.

Besides the sign-up bonuses though, ultimately we prefer Celsius due to them generally offering a higher yield than BlockFi on stablecoin deposits — often beating out BlockFi by 3% -> 4% annually — this is why we currently only use Celsius for our stablecoin holdings, while we use both when it comes to Crypto-deposits, as their rates when it comes to Bitcoin/Ethereum and other crypto-assets are relatively similar otherwise.