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I know that Ether itself has 18 decimals, that is why we are following that standard. But Why does USDT or USDC have 6 decimals and not 18 decimals?

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I was just creating a stablecoin and had the same discussion within our group. I was suggesting 18 decimals. In the end we chose to have 6.

If you look at it from fiat perspective, you would probably need just 2-3 decimals, since that's how we denote fiat currencies typically. If a bit more precision is needed - just in case - 6 sounds like good enough. Having 18 might be confusing for people from the fiat world.

From a developer perspective it doesn't matter too much what the amount is. There are very few services where the amount of decimals would actually make some difference, since all smart contracts should typically just ignore the amount of decimals. Or if a service needs to use the amount of decimals, they already have built-in conversion functionality.

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USDT was around before the ERC20. They were on OMNI (a bitcoin sidechain basically) and just migrated it over. USDC just copied it to compete with them

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