Before we delve into the top five stablecoins by usage, it’s important to note that investing in stablecoins comes with inherent risks. Although stablecoins are intended to maintain a steady value compared to other cryptocurrencies, they are not entirely risk-free. It can be difficult to independently verify the claims regarding the collateralization and backing of stablecoins. Therefore, investors must exercise caution and conduct thorough research before investing in them. Finally, we will reveal the most trusted stablecoin at the end.
On May 22, 2010, a Florida man spent 10,000 BTC for two pizzas from Papa John’s. Although this was recorded as the first-ever crypto transaction for an actual good, it now looks like a rather regrettable purchase. Especially because 10,000 BTC equals millions of dollars now, buying those two pizzas wouldn’t be so regrettable for Laszlo Hanyencz today if he used a stablecoin to make the purchase.
The crypto industry has grown unprecedentedly in the past few years. Many factors have contributed to this enormous growth rate, including crypto’s decentralized nature. But if there was one thing holding people back, it has to be market volatility.
Stablecoins solve this problem. Continue reading to learn what a stablecoin is and the best stablecoins to invest in.
Table of Contents (click to expand)
- What is a Stablecoin?
- Criticism of Stablecoins: Understanding the Skeptical Perspective
- 5 Best Stablecoins
- Using Stablecoins
- Crashed Stablecoin – TerraUSD (UST) renamed to Terra Classic (USTC)
- Frequent Asked Questions
- Bottom Line
What is a Stablecoin?
Stablecoins are just like other cryptocurrencies, whose value is not volatile. This means their values stay pegged to the value of an external factor such as another fiat currency. This gives stablecoins the much-needed ‘stability’ as a store of value that a medium of exchange needs for transactions.
The advent of the stablecoin has changed the crypto landscape dramatically. Previously, crypto owners couldn’t hold crypto assets without worrying about them falling in value. They had to convert crypto to fiat to hold it, and the conversion process can be costly and inconvenient.
With stablecoins, you can hold your assets within the crypto world with the stability of a fiat currency, bringing the best of both worlds to you so they say. Plus, stablecoins are also readily accepted by some regulators because stable values make it easier for an altcoin to stay compliant.
Criticism of Stablecoins: Understanding the Skeptical Perspective
Despite their popularity, stablecoins face significant criticism. Let us explore the various reasons why some people and entities are skeptical about stablecoins, using the perspective of well-known Twitter influencer @bitfinexed as a case study.
- Transparency and Audit Concerns: Critics argue that without full, independent audits, it’s difficult to trust the claims of stablecoin issuers regarding their reserves. @bitfinexed has frequently highlighted these concerns, questioning the legitimacy of Tether’s reserve claims.
- Market Manipulation Allegations: There are allegations that some stablecoin issuers may influence the cryptocurrency market by issuing more tokens than their reserves can support.
- Regulatory and Compliance Issues: Skeptics point out that many stablecoins operate in a regulatory gray area. The varying degrees of regulatory compliance among stablecoin issuers lead to concerns about their long-term stability and legal standing.
- Centralization vs. Decentralization: Stablecoins, controlled by centralized entities, contradict the decentralized nature of traditional cryptocurrencies. Critics argue that this centralization introduces traditional financial system risks into the crypto space.
- Economic Stability Risks: If something goes wrong with a big stablecoin, it could cause problems for lots of other digital currencies.
- Reliance on Traditional Systems: Since stablecoins are often tied to everyday money like dollars, they can be affected by the same ups and downs, which might cancel out some benefits of using digital money.
In essence, while stablecoins offer advantages, their criticisms – ranging from transparency to centralization – are crucial in shaping the future discourse around their role in the financial ecosystem.
Enough definitions. Let’s dive into the five best stablecoins in the market without further ado.
5 Best Stablecoins
1. Tether (USDT)
USDT is named Tether because it ‘tethers’ or attaches itself to the US Dollar. It was launched in 2014 with the name RealCoin and at the time of the launch, it was stated that its value will always stay tethered to 1 USD.
Its market cap is currently $86 billion and it is known as one of the first stablecoins to enter the market, making it the largest stablecoin. This is also why Tether needs to regularly report its USD reserves to prove that it can stay pegged to the USD.
Tether is also known for its security and seamless integration with various crypto exchanges and wallets. According to Tether, it allocates equal USD fiat to its reserves whenever it adds USDT into circulation, ensuring that the altcoin is backed by cash and equivalents.
Transparency: Tether claims that all Tether tokens are pegged at a 1:1 ratio with the US Dollar. All Tether coins are 100% backed by their reserves. Tether publishes the value of its reserves daily and is updated at least once a day.
Note: Despite Tether’s representations on social media, its ‘reports’ do not meet the standards of formal audits. Tether has consistently failed to subject its claimed reserves to thorough scrutiny by an independent, unrestricted third-party auditor, perpetuating a significant track record of unfulfilled assurances.
2. USD Coin (USDC)
USD Coin is one of the most popular stable altcoins after Tether. Just like Tether, USDC is also pegged to US $1. It’s much newer to the market, being introduced in only 2018, and has quickly risen to the top of the cryptocurrency charts.
Its current market cap is $24 billion, and it operates on multiple blockchains, including Ethereum, Algoland, and Solana. USD Coin is backed by Coinbase, which claims that the stablecoin has attained regulatory compliance. This stablecoin is not widely exchanged, accepted for payments, and is being used increasingly in decentralized finance.
Transparency: USDC claims it is fully backed by highly liquid fiat reserves separately held from Circle’s operating funds. They issue holding reports regularly on all reserve assets and SEC filings. USDC also issues monthly attestations from Grant Thornton that assure that stablecoin reserves are always greater than USDC in circulation.
DAI is a stablecoin on the Ethereum blockchain that aims to be as stable as the US dollar, launched by MakerDAO in 2017. It is backed not by fiat but by other cryptocurrencies through the Maker Protocol’s smart contracts. This decentralized setup enables it to bypass central authority, maintaining its dollar peg through community governance.
Stability is secured by Collateralized Debt Positions (CDPs), where users deposit crypto as collateral to mint DAI, aligning its value with the dollar. Its current market cap is equal to $5 billion, and its resilience to volatility makes DAI crucial for decentralized finance (DeFi) activities like lending and borrowing without relying on traditional financial institutions.
Transparency: DAI uses the Ethereum system to make sure every transaction is visible to everyone, keeping things clear and honest. It works independently, without middlemen, and lets users be in control. With special digital contracts, all DAI activities can be checked by anyone, making them trustworthy.
4. True USD (TUSD)
TrueUSD is yet another fiat U.S. dollar coin pegged to the USD at 1:1. It was first launched to limited investors in 2018 and has grown to a market cap of $3 billion by November 2023.
TrueUSD is one of the many stable altcoins introduced by TrustToken, which also has other stablecoins like TrueAUD, TrueHKD, and TrueGBP.
Transparency: TUSD is “regularly attested“, which makes it one of the most transparent and secure altcoins. It is also known for its high liquidity as it offers high interest rates and very low transaction fees compared to fiat money wire transfers.
5. Binance USD (BUSD)
This stablecoin is backed by Binance, the world’s largest crypto exchange. BUSD was launched in 2019. Its supply is limited by monthly audited USD reserves which makes it one of the most protected cryptos to invest in.
Along with Paxos, Binance is one of the founding members of this cryptocurrency, which not only adds to its credibility but also has extra perks like free exchange services. BUSD currently has a market cap of $2 billion.
Transparency: Binance started issuing monthly reserve holding reports for its BUSD stablecoin after the fall of Terra UST in 2022.
Using stablecoins, such as Tether (USDT), USD Coin (USDC), Binance USD (BUSD), or others, can be a strategic move for Cryptocurrency traders. We have created a few guidelines and considerations for effective and safer use of stablecoins:
- Diversification and Risk Management
Stablecoins can provide a haven during periods of high volatility in the crypto market. Traders often convert a portion of their portfolio into stablecoins to reduce exposure to price fluctuations in more volatile cryptocurrencies.
- Facilitating Trades
Stablecoins can act as a bridge between different cryptocurrencies, allowing traders to move in and out of positions without converting back to fiat currency. Depending on the trading platform and the pairings available, this can be more efficient and sometimes more cost-effective.
- Hedging Against Fiat Inflation
Some traders use stablecoins as a hedge against inflation in their local fiat currency, especially if the stablecoin is pegged to a more stable currency like the US dollar.
- Liquidity and Market Access
Stablecoins often provide better liquidity compared to some other cryptocurrencies, especially in various trading pairs. This liquidity is crucial for executing trades efficiently and for entering or exiting positions without significant slippage.
- Yield Farming and Staking
Some stablecoins can be used in decentralized finance (DeFi) platforms for yield farming or staking, offering potential returns through interest or rewards. However, this comes with its own set of risks and requires a thorough understanding of the protocols involved.
- Understand the Risks and Backing
Before using a particular stablecoin, research its backing and stability mechanisms. Understand if it’s collateralized (and how), algorithmically stabilized, or if other factors might affect its stability.
- Compliance with Regulations
Ensure that any activity with stablecoins complies with local regulations. Be aware of reporting requirements, especially when converting between cryptocurrencies and fiat currencies.
- Platform Security
Use reputable exchanges or platforms with strong security measures to minimize the risk of hacking and theft.
- Stay Informed
The cryptocurrency market and the regulations governing it are constantly evolving. Staying informed about market and regulatory environment changes can help make better trading decisions.
- Have an Exit Strategy
Especially in turbulent market conditions, have a clear plan for when and how to convert stablecoins either back into other cryptocurrencies or into fiat.
Crashed Stablecoin – TerraUSD (UST) renamed to Terra Classic (USTC)
TerraUSD, an algorithmic stablecoin native to the Terra blockchain ecosystem, boasted a market cap of $9.1 billion at the time of the original article’s publication. However, it crashed in May 2022, plummeting to a market cap of $290 million. As of 2023, its market capitalization has further declined to $105 million, marking an all-time high (ATH) drop of 99%.
This coin’s defining features were scalability, interchain usage, and interest rate accuracy. As the name suggests and like all other stablecoins we’ve discussed, UST was, too, pegged to the US $1. But it lost its peg and its price fell to $0.02 in 2022. As of 2023, the price of USTC has further decreased to $0.01.
Frequent Asked Questions
1. Tether (USDT)
2. USD Coin (USDC)
4. True USD (TUSD)
5. Binance USD (BUSD)
To keep its value steady, a stablecoin is linked to something that already has a set value, like the US dollar or gold. There are different ways to make sure a stablecoin’s value doesn’t go up and down too much, such as keeping real money in a bank to back it up (like a guarantee), using other digital money as a backup, or having special rules that control how many stablecoins are available.
Stablecoins are used to facilitate smoother transactions in the cryptocurrency space by providing a stable medium of exchange. They can be used for daily transactions, as a store of value, or as a unit of account. In the context of cryptocurrency trading, they allow investors to move assets within exchanges without the need to convert into fiat currency, which can be a slow and costly process.
Rules for stablecoins vary by country and are still being set up. Whether they’re safe depends on the kind of stablecoin and how it works to keep its price stable. For instance, fiat-collateralized stablecoins are generally considered safer since real-world assets back them, whereas algorithmic stablecoins might carry more risk as they rely on the performance of their underlying algorithm to maintain stability. It’s wise to learn about a stablecoin’s risks before using it.
Yes, USDC is often seen as safer than USDT. Even though more people use USDT for trading and paying, USDC is considered more secure. This is because the company behind USDC, Circle, follows the rules and audits more strictly. They also make sure that their money reserves are complete and clearly shown.
Stablecoins might not make you a lot of money like other investments, but they are perfect for trading in the crypto world. Tether (USDT) is the most used stablecoin because many people use it to buy and sell cryptocurrencies. However, USDC is often seen as the most trustworthy. The company behind USDC, Circle, is very good at following financial rules and being open about their backing and holdings. With stablecoins, you can enter the world of cryptocurrencies more confidently, enjoying less price fluctuation.
Never forget when using centralized stablecoins why cryptocurrencies were created: to offer a decentralized alternative to traditional, centralized financial systems.