How FDUSD Changes The Stablecoin Landscape – Comparison with USDT and USDC
Stablecoins are at the forefront of financial innovation, promising to accelerate financial inclusion by providing access to stable currencies and financial instruments to individuals and markets currently restricted by, or excluded from, traditional financial services.
While the current stablecoin landscape is dominated by USDT (Tether) and USDC (Circle), both of which are widely adopted across the world’s leading crypto exchanges and trading platforms, the market is calling for more diversity.
Challenges include a lack of clear regulation, growing trust issues, rapidly expanding adoption and use cases that could be potentially abused, as well as mounting security and scalability concerns as technology advances outpace standards and governance.
Enter FDUSD
First Digital USD (FDUSD) is one of a number of new alternative stablecoins to emerge recently. Issued by the Hong Kong-based subsidiary of First Digital Group, FDUSD's market cap increased by 47% in August 2024 alone, reaching $2.94 billion. This surge in uptake demonstrates investor interest in alternatives to the current market offerings.
Understanding the differences between these stablecoins is crucial for anyone interested in the future of digital finance. Let's take a closer look at what sets FDUSD, USDT, and USDC apart.
Topline Comparison
In short, FDUSD, USDT, and USDC are all USD-pegged stablecoins, but they differ in key aspects. USDT is the largest by market cap and most widely supported, USDC offers the strongest regulatory compliance and transparency, while FDUSD is a newer entrant providing reduced exposure to US systemic risk.
FDUSD’s Offering and Features
As an Asia-based issuer of a fully backed stablecoin, First Digital Labs aims to deliver a 1:1 USD-backed stablecoin with a focus on trust, scalability, and accessibility. FDUSD benefits from reduced exposure to US-originated systemic risk, while being reinforced by strong Asian banking rails. It is worth noting that First Digital Labs is a subsidiary of First Digital Group, a Hong Kong-based company with over three decades of experience in managing trust and custody for high-net-worth individuals and financial institutions.
Use Cases: Stability, cross-border transactions, hedge against central banks, store of value.
Transparency/Reserves: FDUSD is 100% backed by secured USD assets. First Digital Labs provides an “attestation of reserve” report, audited by independent auditors, to demonstrate that FDUSD is fully supported by an equivalent value of cash or cash equivalents. As a trust company registered under Hong Kong law, First Digital Labs is required to keep all FDUSD reserves in segregated accounts, ensuring there is no commingling with other assets. This means investors can still redeem in the unlikely event of the company’s insolvency. Reserves are also held in cash or highly liquid assets to help ensure the 1:1 backing of FDUSD.
Technology/Security: FDUSD is an ERC-20 standard token that is chain agnostic, currently supported by Ethereum, BNB, and the recently added Sui chain (where FDUSD is the flagship stablecoin). Other blockchain protocols will be added over time. FDUSD is designed to provide stability and security for a range of financial services, from remittances to escrow contracts.
USDT’s Offering and Features
As the first stablecoin to be established, USDT remains a preferred stablecoin for many investors and institutions today. Pegged to the US dollar, it provides stability, and its large market cap enhances liquidity, making it easily tradable and widely accepted.
Use Cases: Trading, cross-border payments, remittances, banking the unbanked globally.
Transparency/Reserves: Tether states its tokens are fully backed by reserves, including cash, cash equivalents, and other assets. Tether publishes daily information on USDT in circulation and commits to having assets exceed liabilities. Their reserves are audited quarterly by BDO Italia, with about 84% of the reserves held in cash or cash equivalents and the rest in other investments such as Bitcoin and secured loans. Industry observers continue to call for more independent third-party analysis to enhance transparency.
Technology/Security: USDT is available on most major blockchains, including Ethereum, BNB Chain, Solana, Algorand, and others, making it widely accessible. It also operates across multiple formats, opening up more use cases and integration possibilities with various blockchains. Formats include: USDT ERC-20, USDT TRC-20, Omni format, USDT SPL, and USDT TON.
USDC’s Offering and Features
Originally managed by Centre, a consortium co-founded by Coinbase (the crypto exchange) and Circle (a Boston-based financial technology company), USDC is now solely managed by Circle, with Coinbase retaining a minority stake. USDC stands out for its position as a fully regulated stablecoin in the US at the state level. Its price stability, reliability, and transparency have contributed to its growth, making it the second-largest stablecoin after USDT. However, its de-pegging incidents serve as a reminder of the potential risks of being closely linked to the US banking infrastructure.
Use Cases: Cross-border payments, dollar-backed financial services.
Transparency/Reserves: USDC is regulated and fully reserved. Its cash assets are held in segregated accounts with regulated US financial institutions, and its reserve portfolio is held at the Bank of New York Mellon. USDC provides monthly audits by an independent Big Four accounting firm and weekly disclosures to ensure reserve transparency. USDC was recently granted an e-money license in the European Union under MiCA, and in the US, it is regulated as a form of stored value under money transmission laws in 43 US states and territories.
Technology/Security: USDC is natively supported on 15 different blockchains, including Algorand, Arbitrum, Avalanche, Base, Celo, Ethereum, Hedera, NEAR, Noble, OP Mainnet, Polkadot, Polygon PoS, Solana, Stellar, and ZKsync, with additional support via third-party bridges for other chains through Circle’s Bridged USDC Standard.
Can FDUSD Challenge USDT and USDC’s Position?
There has been a rush from various companies to issue and profit from stablecoins. However, critics argue that most lack distinguishing features that would draw users away from USDT or USDC, which remain market leaders.
Although it is still early days, FDUSD has quickly gained attention due to its rapid rise in market capitalisation. This may be attributed to its 1:1 backing with fully audited reserves held in segregated accounts, as well as its positioning as a US dollar-denominated stablecoin that is less directly exposed to the US financial system compared to USDC. For those with a bearish view on the US financial system but who still want access to a highly liquid stablecoin, FDUSD may be worth considering.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.
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Disclaimer: Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
