USDT vs. USDC vs. DAI: Which Stablecoin should you choose?

Oftentimes, when crypto investors and enthusiasts see their portfolios soaring with gains but fail to take profits, they believe the trend will last indefinitely. However, the reality of market volatility tells a different story. Prices can swing drastically, and gains can quickly turn into losses. To mitigate such risks, stablecoins offer price stability while enabling seamless cross-border payments.

As one of the most widely adopted digitized real-world assets (RWA), stablecoins account for over 50% of all blockchain transactions. These cryptocurrencies achieve price stability by being pegged to a reliable asset, such as fiat currencies like the US dollar or commodities like gold.

Among the many stablecoins available, three of the most popular are Tether (USDT), USD Coin (USDC), and DAI (now USDS). While they all aim to maintain a stable value, each has distinct features, issuance mechanisms, and governance models that set them apart. This article will compare USDT, USDC, and USDS, highlighting their key differences and how they maintain their stability.

What are Stablecoins?

Stablecoins are a class of cryptocurrencies designed to maintain a stable value by pegging their worth to a reserve of assets, such as fiat currencies, commodities, or other cryptocurrencies.

As such, the primary purpose of stablecoins is to combine the benefits of cryptocurrencies—such as decentralization, security, and ease of transfer—with the stability of traditional financial assets. Among the stablecoins widely adopted, USDT, USDC, and DAI (now USDS) have established themselves as leading choices, each serving different user needs within the crypto ecosystem.

Origins and Development

• Initially, USDT (Tether) was launched as Realcoin in 2014 by Brock Pierce, Reeve Collins, and Craig Sellars under Tether Limited. It was the first major stablecoin and remains the most widely used. However, it has a history of legal challenges, mostly over transparency concerns.
• Unlike USDT, USDC (USD Coin) was launched in 2018 by Centre, a joint venture between Circle and Coinbase, to create a more transparent and regulatory-compliant stablecoin. It undergoes regular audits and holds its reserves in reputable U.S. financial institutions.
• USDS (formerly DAI) was created in 2017 by MakerDAO—a cryptocurrency protocol that enables users to borrow and lend cryptocurrencies without intermediaries. Unlike USDT and USDC, which are issued by centralized companies, DAI operates on a decentralized system. Individuals lock up cryptocurrency as collateral to produce new DAI tokens, ensuring a self-sustaining, algorithmic stablecoin model.

Blockchain Issuance and Support

• The USDT was first launched on Bitcoin's Omni Layer as Realcoin. It was later rebranded to Tether and expanded to Ethereum (ERC-20), Tron (TRC-20), Binance Smart Chain (BEP-20), Solana, and other platforms, making it highly versatile across multiple blockchains.
• Meanwhile, USDC was built on Ethereum (ERC-20) to leverage the smart contract technology but now supports 16 blockchains, including Algorand, Solana, Avalanche, and Polygon, ensuring greater interoperability and adoption across different ecosystems.
• Primarily, USDS (formerly DAI) operates on Ethereum (ERC-20) and relies on smart contracts to regulate its supply and maintain its peg. It is deeply integrated into DeFi applications, which makes it a popular choice for decentralized finance users.

Reserve Backing and Transparency

The backing of a stablecoin determines its reliability. While USDT and USDC claim to be fully backed by reserves, transparency remains a point of contention, especially for Tether.

• USDT is backed mainly by U.S. Treasury Bills and other financial instruments. Reports suggest over 58% of USDT reserves are held in U.S. Treasuries, though past controversies, especially around the transparency of its reserves, have raised doubts about its full backing.
• USDC, on the other hand, maintains a clearer reserve structure, with 75.6% of its reserves in U.S. Treasuries and 24.4% in cash at regulated financial institutions. Regular institutional reports verify its reserves, making it more transparent and trustworthy for institutional investors.
• Due to the USDS overcollateralized model, users lock up cryptocurrencies—primarily Ethereum—in smart contracts to mint new USDS. This approach ensures transparency, as all transactions are recorded on-chain and can be publicly audited. However, its reliance on collateralized assets means its supply can fluctuate based on market conditions.

Trading Volume

• According to CoinMarketCap, USDT’s daily trading volume is approximately $102 billion, significantly overshadowing USDC’s $9 billion and USDS's (formerly DAI) $200 thousand daily transactions. This substantial difference in trading volume makes Tether a more popular stablecoin among traders and investors, as it offers greater availability and market activity.
• USDC, while not as widely traded as USDT, is favored by institutional users due to its regulatory compliance and transparency.
• USDS, being largely used within the DeFi space, has lower trading volume but remains an essential asset for decentralized applications.

Governance and Control

Stablecoins can be governed either centrally by a single entity or in a decentralized manner through a community.

• As for USDT, it is fully centralized and controlled by Tether Limited, which manages issuance, reserves, and redemption processes.
• USDC is also centralized, as it is currently managed by Circle, with Coinbase owning an equity stake, following the dissolution of the Centre Consortium in 2023. This has helped the stablecoin strengthen its institutional credibility.
• But in the case of USDS, it is governed by MakerDAO through a decentralized governance model, where MKR token holders vote on key decisions, such as collateral types, interest rates, and system upgrades.

Issuance Mechanism

• Both USDT and USDC operate on a straightforward issuance model, where users send USD to the issuer’s bank and an equivalent amount of stablecoins is created. When redeemed, the stablecoins are burned and USD is returned to the user.
• However, for USDS, users deposit cryptocurrency into a smart contract (Vault) to mint USDS. The system automatically manages collateral levels to maintain stability. To redeem USDS, users return it to the contract and unlock their collateralized assets. This decentralized approach gives users more control but requires them to manage their collateral properly.

Market Capitalization

• As of February 2025, USDT leads the stablecoin market with a massive $142 billion in market capitalization, making it the go-to choice for traders and investors looking for high liquidity and market reach.
• USDC follows with $56 billion, attracting institutional investors who prioritize regulatory compliance and transparency. Its strong backing and frequent audits give it an edge among those who value security and oversight.
• Meanwhile, USDS holds a market cap of $5 billion, carving out its niche in the DeFi space. Its decentralized nature and overcollateralized model make it a preferred option for users who want greater control over their assets within decentralized applications.

Conclusion

Selecting the right stablecoin depends on your priorities. If you prioritize high liquidity and market reach, USDT remains the best option. If transparency and regulatory compliance are important to you, USDC offers a more secure alternative.

For users who prefer decentralized finance applications, USDS (formerly DAI) provides a trustless, overcollateralized model that integrates well with DeFi platforms. However, there is no harm in trying all three to see which one suits your needs best.