Stablecoins are a less volatile alternative to typical cryptocurrencies.
Cryptocurrencies are valuable, but many investors don’t like their price fluctuations. In the past three years, Bitcoin’s value has risen more than 1,000%. The coin has also seen huge drops in value over that period. Price fluctuations like these are simply too much for some investors to bear. Enter stablecoins, which are cryptocurrencies that have their values pegged to another asset such as the U.S. dollar, a commodity or even other cryptocurrencies. This keeps the price of the currency more stable. The idea of stablecoins was first proposed in a white paper published online by J.R. Willett in 2012. Since their inception, they’ve taken off. The world’s stablecoins have a combined market cap of more than $150 billion. Here’s a “best stablecoins” list of the top tokens in this category.
Originally founded in 2014 as Realcoin, Tether sits rightfully atop the list of stablecoins as the first such coin in the world. And with a $78 billion market cap, it’s also the largest by far. First described in a white paper published in 2012, Tether is a fiat-based stablecoin. In other words, each coin is about equal to the value of one U.S. dollar held by the parent company Tether Operations Ltd. This means the coins can always be exchanged for an equal value in U.S. dollars. Despite paying a 2021 settlement over accusations of a lack of financial transparency from the New York attorney general’s office, a report by auditing firm Moore Cayman in June 2021 stated that Tether’s “reserves held for its digital assets issued exceeds the amount required to redeem the digital asset tokens issued.” Market analysis firm InvestorsObserver gives the coin a low-risk rating, meaning price manipulation is unlikely.
According to MakerDAO’s white paper on the company’s Dai stablecoin, “Dai is generated, backed and kept stable” by the use of Ethereum-based currency deposited into MakerDAO’s vaults. This deposited cryptocurrency then works as collateral for whenever a user wants to withdraw Dai currency. And because the deposited cryptocurrencies are worth more than the U.S. dollar, MakerDAO can keep its stablecoin pegged loosely to the U.S. dollar at a 1-to-1 ratio. This theory was so exciting to some investors that in September 2018, less than a year after the currency launched, venture capital firm Andreesen Horowitz invested $15 million in MakerDAO. This bought 6% of all the company’s existing tokens at the time. This institutional investment also helps keep the coin’s value stable. Even though InvestorsObserver considers Dai slightly more volatile than Tether, the site still ranks the currency as low risk.
Binance USD (BUSD)
The next contender for best stablecoin, with a market cap of more than $14 billion, BUSD is the third-largest stablecoin in the world. In August 2020, BUSD was “greenlisted” by the New York State Department of Financial Services. For investors in the coin, this means four things. First, Paxos Trust Co. — Binance’s partner behind BUSD — has sufficient reserves to cover every BUSD coin in existence. Second, regulators watch over the reserves backing these coins. Third, all reserves must be held in credible forms such as U.S. Treasury instruments and Federal Deposit Insurance Corp.-insured bank accounts. And finally, token reserves are fully separate from corporate assets. This means they’re separate from any holdings Paxos might declare in bankruptcy filings, which makes the coins even more secure for investors. It’s no surprise, then, that InvestorsObserver ranks BUSD as low risk.
TrueUSD was the first regulated stablecoin backed by the U.S. dollar. Of course, the key word in that statement is “regulated.” Regulations were put in place for TUSD because TrustToken Inc. — the exchange that issues TrueUSD — wanted to secure the trust of the cryptocurrency industry by rooting out fraudulent and manipulative schemes. Therefore, TrueUSD is a relatively transparent coin with a market cap of about $1.3 billion. TUSD’s reserves are fully audited by Cohen & Company, a cryptocurrency audit and tax firm. TrustToken doesn’t charge any trading fees on its TUSD coins, which is enticing to many investors. TrustToken isn’t fully decentralized, however, and users are bound to the standards of the TrustToken platform. In other words, regulatory actions on the TrustToken platform will affect holders of TUSD.
USD Coin (USDC)
Founded in conjunction with cryptocurrency exchange Coinbase Global Inc. (ticker: COIN) and Bitcoin mining company Bitmain Technologies Inc., USDC — like many of the coins included on this stablecoins list — is tied to the U.S. dollar. Released in September 2018, USDC has a current market cap of more than $42 billion, making it the second-largest stablecoin by market cap. USDC reserves are attested to on a monthly basis by Grant Thornton LLP, a Chicago-based accounting firm. Although the reserves are attested to, they aren’t audited. This means the firm will check the validity of existing data, but it won’t audit for internal inconsistencies. Although the coin’s volatility ranking is slightly higher than industry leader Tether’s, USDC is still considered a low-risk cryptocurrency by InvestorsObserver.
According to the TerraUSD white paper, the goal of this coin is to remain “both price-stable and growth-driven.” TerraUSD’s protocol is stabilized by Terra’s own native cryptocurrency, Terra. The way this works is fairly straightforward. The Terra platform protocols incentivizes users to earn extremely low-risk profits when TerraUSD’s price is anything other than $1; by linking TerraUSD to the regular Terra (LUNA) coin, and allowing LUNA to be exchanged for either UST or dollars (and vice versa), more UST is created when its price rises above a dollar, while the UST pool starts to contract when its price is below a dollar, bringing equilibrium. This give and take keeps the price of TerraUSD stable with respect to the dollar. And it appears to be working. Although rated a bit riskier than the likes of Tether and Binance USD, InvestorsObserver still considers TerraUSD to be a low-risk coin.
Digix Gold Token (DGX)
DGX works differently than the other coins included on this list of stablecoins. For this reason, InvestorsObserver considers this coin to have a higher risk rating than those previously mentioned. The site rates DGX as a medium-risk coin, meaning the price may be more volatile, but it’s still not likely to be manipulated. The reason for DGX’s increased volatility is that it isn’t pegged to a fiat currency. Instead, each DGX coin is redeemable for one gram of gold. This means the coin’s price depends on the price of gold. As gold’s price fluctuates, so does the price of DGX. Although this makes the currency more volatile, it’s attractive to many investors who believe in the power of hard assets. There are 58,000 DGX coins in existence, and the coin’s market cap is valued at about $4.1 million.
7 best stablecoins list:
— Tether (USDT)
— Dai (DAI)
— Binance USD (BUSD)
— TrueUSD (TUSD)
— USD Coin (USDC)
— TerraUSD (UST)
— Digix Gold Token (DGX)
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