USB vs SPDIF, which sounds better?

It’s really complex, the way I see it. It’s a great question though.

SPDIF has one significant advantage: Both SPDIF transmitters and receivers are real (hi-fi) audio grade components. USB transmitters and receivers aren’t, they are computer components. They don’t deal with noise they induce (both through USB transmitter and receiver), and even transport protocol commonly used (USB isochronous asynchronous, UAC 2.0) isn’t quite tailored to hi-fi (or especially hi-end) needs.

SPDIF, although it’s really tailored for hi-fi audio, has few significant disadvantages too: transmitter side is master and receiver is slave. Clock is encoded with the signal information, however it’s subject to transport jitter by itself as well, and the reconstruction of it will not be perfect - and in case receiver (DAC) does have its own precise clock, it’s not perfectly fitted (identical) to transmitter’s clock, by which the signal is encoded. And it’s really a synchronous protocol, so precise alignment of clock on the receiving side is important. OTOH USB is asynchronous and encoded different way so it doesn’t at all depend on clock on the transmitter side - it’s able to dejitter the signal effectively using the receiver’s master clock.

So while SPDIF’s bigger weakness is jitter, USB’s bigger weakness is noise, plus occasional altering of the digital signal data, which happens because there’s no data resend in UAC 2.0 and there’s no ECC either - if there’s error in data, it’s fed in DAC as is and DAC handles it the best it can

In practice, however, much depends on quality of receiver side where various SPDIF or USB receivers have various quality in reconstruction of the digital signal (and clock in SPDIF case), plus handling the noise sent from the receiver through data, ground and voltage lines.

In case of computer audio computers make noise on their own, so it’s a real challenge for the rest of the system.

I’d say the end result can’t be unanimous, the implementation matters more which will be better. And the same device does not need to have the same quality of implementation for USB and SPDIF receiving circuitry.

Practice says cables matter as well through both. In my view SPDIF is cheaper to ensure a quality digital cable. While with USB, the quality of USB receiver matters for cable demands as well. With less good USB receiver DAC (or converter) is more sensitive to USB cable quality.

Besides, computers/PC have a different level of noise they generate and in situation when they’re especially noisy it’s quite audibly apparent. Really noisy PC/comp is capable of making USB absolutely inferior as level of noise can become too much for DAC to successfully handle.

Disclaimer: all mentioned above are personal observations, experience and conclusions. Also some errors in assembled knowledge are possible. 

Most standalone DAC’s don’t take power from the USB cable anyway. Power isn’t the real culprit, the ground loop can occur in the data, not to mention extra noise. Ideally DAC’s now have galvanic isolation built into all of the metal connectors.

If your DAC does take power from the USB cable, using an isolator with a linear power supply is a better solution.

Noise comes in through the USB ground line too, and it’s a question whether some USB DAC completely disconnects both voltage and the ground line.

You can have a complete galvanic isolation on the digital side, yet still the difference between a computer and a computer can be heard. Noise passing through USB data lines, that’s one possibility. Imperfection of galvanic isolation in practice is the another one.

* XLRs tend to have a bit greater dynamics from top to bottom, blacker backgrounds. Sometimes perform worse than SPDIF.

XLR connectors are generally better for digital than RCA because of impedance matching (unless BNC is used) to AES/EBU and because of typically having ower metal mass - however there are low metal mass RCA connectors available which are better for digital purpose. There are even few 75 Ohm (or close to 75 Ohm) RCA available, such as WBT or Canare. Comparison with XLR should be made using the cable with best fit RCA connectors for SPDIF transmission to see whether XLR has any superiority once you use the right RCA. As for protocols themselves, S/PDIF and AES/EBU are pretty much similar and they share same strengths and weaknesses.

Good and inexpensive SPDIF cable can be made by using Supra Trico 75Ohm coax from the bulk and Star Line gold plated RCA. Tonal neutrality and good detail. You only need to solder it properly since there are two separate coax braids in the cable - the outer one (one without silver plating) is used as a drain only and soldered only on one of RCA connectors. When soldering that side, drain bundle must be made and soldered separately from the silver plated braid bundle used for the signal. You can reduce the diameter of drain bundle by cutting part of the braid, however the silver plated braid used for the signal must be soldered as a whole.
Non-proper soldering usually results in audible degradation.