Crypto

USDC vs DAI – What’s The Difference?

Stablecoins are important as they bridge the world of real money to crypto. You are able to lock in gains without having to convert to cash, avoiding price fluctuations.

2 of these stablecoins include DAI and USDC, and here’s how these two are different:

The difference between USDC and DAI

Both DAI and USDC are stablecoins. However, USDC has a higher market cap, more trading pairs and higher availability of lending platforms compared to DAI, which is over-collateralised with a variety of crypto assets. As such, DAI is a decentralised stablecoin, while USDC is controlled by a central entity.

Here’s a further comparison of these 2 stablecoins:

Reserves Liquidity and Market Capitalisation

One of the most important aspects of a stablecoin is its reserves. This is how a stablecoin can maintain a constant price despite the changes in the cryptocurrency market.

USDC – Reserves and Liquidity

In an ‘attestation’ that was done by Grant Thornton in 2021, the findings showed that only 60% of USDC reserves are made of cash.

Meanwhile, the remaining 40% of the reserves were backed by debt securities and bonds.

A debt security is a debt instrument that can be bought or sold between two parties and has basic terms defined, such as the notional amount (the amount borrowed), interest rate, and maturity and renewal date.

Their assets are less liquid and less accessible compared to cash. Furthermore, it takes time to retrieve those assets. If the other party is unable to pay the loan, then the money is essentially gone.

If there is a big crash in the crypto market and everyone wants to cash out USDC for USD at the same time, you may not be able to do so!

USDC – Market Capitalisation

USDC has the second-largest market cap of all stablecoins, with the largest being USDT.

This shows the faith that investors have in this stablecoin.

DAI – Reserves and Liquidity

The situation of collateral with DAI is a bit different and relatively more complicated. DAI tokens are actually over-collateralised in the sense that for every DAI coin in existence, there’s 150% of crypto assets backing it.

Compared to other stablecoins which are backed by USD, DAI is backed by collateral on the Maker platform.

The collateral is deposited with MakerDAO, which accepts a wide variety of coins, including:

The price of DAI is maintained through smart contracts, instead of having a central organisation to keep the price steady.

This makes DAI a decentralised stablecoin, where it is not being controlled by a central entity.

However, there are risks when the assets that back DAI have a huge decrease in price. With a huge drop in the price of ETH in March 2020, MakerDAO considered shutting down DAI, which shows the risks of being backed by other assets instead of USD.

DAI – Market Capitalisation

When comparing the market capitalisation of DAI, it has the 5th highest market cap, just behind UST and BUSD.

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Availability of Trading Pairs on Platforms

The main purpose of stablecoins is to convert volatile coins into a more stable currency.

For stablecoins to be useful, we have to be able to exchange any crypto coins of our choice into stablecoin.

A trading pair is where assets that can be traded for each other on an exchange

The more trading pairs a coin has, the more useful a coin is.

An example of a trading pair is Bitcoin/Ethereum (BTC/ETH), which is the exchange between Bitcoin and Ethereum.

If you are exchanging Bitcoin for Tether (USDT), you are using the trading pair of BTC/USDT.

Let’s look at the number of trading pairs each of the coins has:

USDC – Trading Pairs

As the second-highest stablecoin in terms of market cap, USDC has quite an extensive number of trading pairs on different platforms, such as:

  1. Binance
  2. KuCoin
  3. Kraken
  4. Poloniex
  5. Crypto.com Exchange

Most of these platforms allow you to trade various cryptocurrencies for USDC, including:

  1. XRP
  2. ADA
  3. BNB

DAI – Trading Pairs

While USDC has an extensive number of trading pairs, DAI has much fewer trading pairs. Most of these trading pairs are limited to either:

  • BTC
  • ETH
  • Other stablecoins
  • Fiat currencies

You won’t be able to buy altcoins with DAI on most trading platforms!

As such, the variety of trading pairs that you can use to buy with DAI is much less limited.

Interest rates on staking platform

Other than trading with stablecoins, you can also earn interest with your stablecoins on various staking platforms.

The prices of stablecoins remain constant, unlike other cryptocurrencies such as Bitcoin. This makes holding stablecoins a great way to avoid market volatility

On top of that, the interest rates for stablecoins are usually higher than normal coins. Even though stablecoins can be considered similar to USD, the interest rates for stablecoins are much higher compared to those offered by the banks!

Your stablecoins gain interest, while having stable prices.

This is a great way to earn passive income

Let’s compare the interest rates across the different platforms: 

USDC – Interest Rates

Here are some of the places where you can lend or ‘stake’ USDC:

PlatformMinimum
Deposit
Lock-In
Period
CelsiusNoneFlexible
NexoNoneFlexible
Crypto.com250 USDCFlexible,
1 / 3 months
Binance1 USDCFlexible
AAX10 – 100 USDCFlexible,
7 / 14 / 30 days
BlockfiNoneNone
HodlnautNoneNone
MidasNoneNone

You can find out more about these platforms with this guide on ‘staking’ USDC.

DAI – Interest Rates

Here are the crypto exchanges and platforms that offer staking for DAI:

PlatformInterest rate (per year)
Binance2.2% for flexible
BlockFi8.75% for the first 20,000 DAI  7.75% after the first 20,000 DAI
Crypto.comUp to 12%
NexoUp to 12%

There are more platforms that allow you to earn interest on USDC, compared to DAI.

Companies behind USDC and DAI

To look at the value of a cryptocurrency, it will be good for you to consider their management team. 

The company that is in charge of a stablecoin has a vision for the coin, which in turn sets the direction of the coin.

In the case of stablecoins, they have to be trustworthy as they essentially work as a central bank that prints and distributes money. 

Let’s look at the companies behind these coins: 

USDC – Centre and Circle

USDC is backed by the Centre consortium, which was founded by both Circle and Coinbase.

All of these companies are well established in the cryptocurrency space, and you are able to have some assurance when using USDC as a form of exchange.

DAI – MakerDAO

MakerDAO was founded by Rune Christensen, where the value of the stablecoin is achieved by regulating it through this Decentralised Autonomous Organisation (DAO).

Due to this decentralised design of DAI, you are able to use it without being regulated by a central entity.

Final Verdict

Here is a summary of both stablecoins:

USDCDAI
Liquidity
and reserves
60% cash and 40% backed by bonds
and debt securities
Over-collateralised with
a variety of coins
(ETH, BAT, USDC)
Market
capitalisation
Second-highest stablecoin market cap5th ranked stablecoin (based on market cap)
Trading pairs
availability
MoreFewer
Staking interest ratesMore platforms availableLess platforms available
Owners of the coinsCircle, Centre and CoinbaseMakerDAO

So which stablecoin is more suitable for you?

Choose USDC if you prefer convenience

In terms of convenience and availability of trading options, USDC is the better option.

However, if you hold USDC, you have to tolerate the risk of Circle only having a small portion of cash reserves.

Having cash reserves is also an important factor in evaluating stablecoins. 

Choose DAI if you are looking for a decentralised stablecoin

DAI is unique as it is not backed by any fiat currencies, but instead by a variety of cryptocurrencies.

Since there is no central entity that controls the reserves, the stablecoin can be considered to be decentralised, and governments may not be able to regulate it as much as USDC!

However, DAI has lower availability of trading pairs compared to USDC, so it may limit its use cases for trading with other cryptocurrencies.

Conclusion

Stablecoins are essential to the crypto ecosystem.

Stablecoins may all serve the same purpose, but they are not created equal.

USDC and DAI are the top stablecoins in the market at the moment and are both useful in their own ways. 

To decide which stablecoin to use, you should consider your needs, such as:

  • the types of coins you buy
  • the platforms you use
  • the level of risk you are willing to take
  • whether you want full control of your coins

From there, you can better determine which stablecoin is most suitable for you!

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