USDT vs USDC for Merchant Settlement: Stability, Liquidity, and Compliance
- Joseph Prokop
- 5 days ago
- 8 min read
Choosing the right stablecoin for payment settlement affects your liquidity management, regulatory compliance, and operational efficiency. Tether (USDT) and USD Coin (USDC) dominate merchant settlement, together representing over 80% of stablecoin volume. In this guide, we'll compare both options across critical factors including regulatory backing, liquidity depth, exchange support, and network availability to help you make an informed decision for your forex brokerage or casino.
What Are Stablecoins and Why Do They Matter?
Stablecoins are cryptocurrencies designed to maintain a stable value relative to fiat currency—typically pegged 1:1 to the US dollar. Unlike Bitcoin or Ethereum, which fluctuate wildly in price, stablecoins provide the settlement speed and finality of blockchain with the price stability of traditional currency.
For merchants accepting crypto settlement, stablecoins solve a critical problem: you don't want price volatility exposure. If you settle $100,000 today and it's worth $85,000 tomorrow due to crypto price swings, settlement becomes a liability rather than an asset.
Stablecoins enable:
Predictable value: $1,000 in USDT or USDC remains worth approximately $1,000 tomorrow
Fast settlement: On-chain transfers complete in minutes rather than days
Global accessibility: No banking infrastructure required for cross-border transfers
24/7 availability: Transactions process anytime, including weekends and holidays
Both USDT and USDC serve these functions, but important differences affect which is optimal for your specific use case.
USDT (Tether) Overview
Tether is the original and largest stablecoin by market capitalization, launched in 2014. It's issued by Tether Limited, a company based in Hong Kong with relationships to the Bitfinex cryptocurrency exchange.
Market position:
Market cap: $120+ billion (as of late 2024)
Daily trading volume: $70-100 billion
Blockchain availability: Ethereum, Tron, Polygon, Solana, Avalanche, and 10+ others
Issuer: Tether Limited
Reserve backing: Tether claims each USDT is backed by reserves including cash, cash equivalents, short-term deposits, and commercial paper. The company has faced scrutiny over reserve transparency and has settled with regulators regarding historical claims about backing.
Despite controversy, USDT maintains its peg and remains the most liquid stablecoin globally.
USDC (USD Coin) Overview
USD Coin launched in 2018 as a collaboration between Circle and Coinbase, two major US-based cryptocurrency companies. It emphasizes regulatory compliance and transparent reserve reporting.
Market position:
Market cap: $35+ billion (as of late 2024)
Daily trading volume: $5-8 billion
Blockchain availability: Ethereum, Polygon, Solana, Avalanche, Arbitrum, Optimism
Issuer: Circle (with Coinbase as founding partner)
Reserve backing: USDC reserves are held primarily in US Treasury securities and cash at regulated US financial institutions. Circle publishes monthly attestation reports from Grant Thornton LLP verifying reserve composition.
USDC positions itself as the compliance-focused alternative to Tether.
Liquidity and Exchange Support Comparison
Liquidity determines how easily you can convert stablecoins to fiat or other cryptocurrencies without slippage:
USDT liquidity:
Supported by virtually every cryptocurrency exchange globally
Deepest order books for USDT/USD, USDT/EUR, and crypto trading pairs
Typical spread: 0.01-0.05% on major exchanges for large conversions
24-hour volume: 3-5× higher than USDC
If you need to convert $500,000 USDT to EUR immediately, you'll find ample liquidity on dozens of exchanges with minimal slippage.
USDC liquidity:
Supported by all major exchanges (Coinbase, Binance, Kraken, OKX)
Smaller order books than USDT but still deep for institutional trades
Typical spread: 0.05-0.15% on major exchanges
Growing adoption, particularly in US markets
For conversions under $100,000, USDC liquidity is indistinguishable from USDT. For multi-million dollar conversions, USDT's deeper liquidity provides better execution.
Verdict: USDT wins on liquidity depth, particularly for large conversions or less common trading pairs.
Network Availability and Transaction Fees
Both stablecoins are available on multiple blockchains, but distribution differs:
USDT network availability:
Ethereum: $1-20 fees depending on network congestion (slow, expensive)
Tron: $1-2 fees, 3-minute confirmations (popular for merchant settlement)
Polygon: $0.01-0.05 fees, 2-minute confirmations (optimal for high-volume)
Others: BSC, Solana, Avalanche, Fantom, Arbitrum
Tether's multi-chain strategy means USDT is available wherever merchants need it.
USDC network availability:
Ethereum: $1-20 fees (slow, expensive)
Polygon: $0.01-0.05 fees, 2-minute confirmations (recommended)
Solana: <$0.01 fees, 30-second confirmations (very fast)
Others: Arbitrum, Optimism, Avalanche, Base
USDC has strong layer-2 presence but less comprehensive coverage than USDT.
For merchant settlement: Most payment providers use Polygon for both USDT and USDC due to low fees and fast confirmations. On Polygon, transaction costs are negligible ($0.01-0.05) for both stablecoins.
Verdict: Both are available on Polygon (the preferred network for merchant settlement), making this factor neutral.
Regulatory Compliance and Transparency
This is where USDT and USDC diverge significantly:
USDT regulatory profile:
Settled with NYAG in 2021 over reserve backing claims
Operates primarily offshore (Hong Kong, British Virgin Islands)
Limited regulatory oversight compared to traditional finance
Quarterly attestation reports (not full audits)
Has maintained peg despite controversies
Tether's regulatory standing creates uncertainty. Some jurisdictions or institutional partners may avoid USDT due to compliance concerns.
USDC regulatory profile:
Circle operates as a licensed money transmitter in US states
Subject to US regulatory oversight and compliance requirements
Monthly attestation reports from Grant Thornton
Reserves held in US financial institutions
Positioned for future stablecoin regulation compliance
If your business prioritizes regulatory compliance or operates in jurisdictions with strict financial oversight, USDC's transparent backing and US regulatory framework provide more defensible positioning.
Verdict: USDC wins decisively on regulatory compliance and transparency.
Merchant Settlement: Practical Considerations
For forex brokers and casinos using stablecoins for payment settlement:
Conversion to fiat frequency: If you convert stablecoins to fiat weekly or monthly, liquidity depth matters more. USDT's superior liquidity means tighter spreads and better execution on large conversions.
If you convert daily or hold primarily in stablecoins, both work equally well.
Banking relationships: Some fiat off-ramps (services converting crypto to bank deposits) prefer USDC due to regulatory clarity. If you're working with US-based banking partners or conservative financial institutions, USDC may facilitate smoother relationships.
Operational simplicity: Both USDT and USDC work identically for merchant settlement. You receive tokens in your wallet, hold them or convert as needed, and manage them through the same interfaces.
Risk management: Some merchants hold reserves across both USDT and USDC to diversify counterparty risk. If either stablecoin faces regulatory action or depegging, you're not 100% exposed.
Peg Stability Historical Performance
Both stablecoins have maintained their $1 peg with rare exceptions:
USDT stability:
Briefly depegged to $0.95 during March 2023 banking crisis
Recovered to peg within 48 hours
Has never sustained significant depeg for more than a few days
Generally trades within 0.1% of $1.00
USDC stability:
Depegged to $0.88 in March 2023 when Silicon Valley Bank (holding USDC reserves) collapsed
Recovered after government intervention guaranteed SVB deposits
Otherwise maintained extremely tight peg historically
Generally trades within 0.05% of $1.00
Both experienced temporary stress during the 2023 banking crisis but recovered. Neither has sustained long-term depegging.
Verdict: Both maintain peg reliability suitable for merchant settlement. Short-term holds (hours to days) carry negligible risk with either.
Exchange and Off-Ramp Preferences
Exchanges preferring USDT:
Binance (largest global exchange)
OKX, Huobi, Bybit (major Asian markets)
Most non-US exchanges
Exchanges preferring USDC:
Coinbase (largest US exchange)
Kraken (strong US presence)
Some institutional platforms
If you primarily use Coinbase for conversions, USDC makes sense. If you use Binance or international exchanges, USDT may be more convenient.
For merchant settlement: Your payment provider determines which stablecoin you receive. Most support both and let you choose based on preference.
Tax and Accounting Implications
From accounting and tax perspectives, USDT and USDC are treated identically in most jurisdictions:
Tax treatment:
Both are considered property/assets for tax purposes
Conversion from USDT/USDC to fiat may trigger taxable events
Holding stablecoins isn't typically taxable (no gains/losses if pegged)
Accounting:
Record as crypto assets on balance sheet
Value at $1 per token for financial reporting
Track conversions to fiat as asset sales
Your accountant won't treat USDT vs USDC differently—both are stablecoins with 1:1 USD value.
Future-Proofing: Regulatory Trends
Stablecoin regulation is evolving rapidly:
US regulatory direction: Legislation under consideration would require stablecoin issuers to be regulated banks or supervised by federal authorities. USDC's US-based issuer (Circle) is positioned to comply. Tether's offshore structure may face restrictions or banking access challenges.
EU Markets in Crypto-Assets (MiCA): European stablecoin regulations take effect in 2024-2025. USDC has announced compliance plans. Tether's approach remains unclear.
Institutional adoption: Banks and payment companies partnering with stablecoin providers tend to prefer USDC due to regulatory clarity.
If stablecoin regulations tighten, USDC is better positioned for long-term viability in regulated markets.
Verdict: USDC appears more future-proof for regulatory compliance, though USDT's massive liquidity network creates strong incentives for it to adapt.
Recommendation: Which Should You Choose?
The optimal choice depends on your priorities:
Choose USDT if:
You prioritize maximum liquidity for large conversions ($500k+)
You primarily use international exchanges (Binance, OKX)
You need the widest possible network availability
Regulatory scrutiny is less relevant to your jurisdiction
You want the most universally accepted stablecoin
Choose USDC if:
Regulatory compliance and transparency are priorities
You work with US-based banking or exchange partners
You prefer Circle's reserve transparency and attestation
Future-proofing for evolving regulations matters to you
You primarily use Coinbase or Kraken for conversions
Choose both if:
You want to diversify counterparty risk
Different payment providers settle in different stablecoins
You operate in multiple jurisdictions with varying preferences
For most forex brokers and casinos, USDT's liquidity advantages outweigh regulatory concerns. But if you're in regulated markets or prioritize compliance, USDC's transparency and US oversight provide peace of mind.
FAQ: USDT vs USDC for Merchant Settlement
1. Can I convert USDT to USDC or vice versa easily?
Yes, cryptocurrency exchanges offer direct USDT/USDC trading pairs with minimal fees (typically 0.1% or less). You can convert between them in minutes if your business needs change. Many merchants receive one stablecoin and immediately convert to the other based on their liquidity management strategy.
2. What happens if one stablecoin loses its peg permanently?
In the unlikely event of sustained depegging, you'd convert to the stable alternative. If USDT depegged to $0.90 and stayed there, you'd convert to USDC or other assets. This risk is why some merchants diversify across both. Historically, both have recovered from temporary depegs within days.
3. Do payment processors charge different fees for USDT vs USDC settlement?
Most payment facilitators charge identical fees regardless of which stablecoin you choose. The facilitation fee (typically 2.5-3%) applies to the fiat deposit amount, not the stablecoin settlement. Your choice of USDT vs USDC shouldn't affect processing costs.
4. Which stablecoin has better customer support or redemption processes?
Circle (USDC issuer) provides direct redemption services to verified accounts, allowing you to convert USDC to USD and wire to your bank. Tether historically required higher minimums and more complex processes for direct redemption. For most merchants, this doesn't matter—you'll use exchanges for conversions rather than direct issuer redemption.
5. Can I use both USDT and USDC in the same wallet?
Glossary of Key Terms
Stablecoin: Cryptocurrency pegged to fiat currency value, designed for price stability
USDT (Tether): Largest stablecoin by market cap, issued by Tether Limited
USDC (USD Coin): Compliance-focused stablecoin issued by Circle
Peg: The 1:1 value relationship between the stablecoin and US dollar
Depeg: When a stablecoin's market price deviates significantly from its $1 target
Liquidity: The ease of buying or selling assets without affecting price
Slippage: Price difference between expected and executed trade price due to liquidity constraints
Attestation Report: Third-party verification of stablecoin reserve backing
Layer-2 Network: Blockchain built on top of Ethereum (like Polygon) offering faster, cheaper transactions
Off-Ramp: Service converting cryptocurrency to fiat currency and delivering to bank accounts
Choose the Stablecoin That Fits Your Business
USDT and USDC both serve merchant settlement effectively. USDT's dominance in global liquidity and exchange coverage makes it ideal for high-volume operations and international markets. USDC's regulatory compliance and transparent reserves suit businesses prioritizing regulatory standing and US market focus.
The good news? You're not locked into a single choice. Your payment infrastructure can support both, and you can adjust based on evolving business needs, regulatory developments, or liquidity preferences.
What matters most isn't which stablecoin you choose—it's that you're using stablecoin settlement at all rather than remaining trapped in traditional payment infrastructure with its chargebacks, frozen accounts, and rolling reserves.
Ready to receive payment settlement in USDT, USDC, or both? Discover how i-Pay delivers flexible stablecoin settlement to your wallet at i-pay.io.
