We love stable coins, don’t we! The total market cap is already more than $185 billion!
It was basically the missing link between other crypto coins and fiat currencies. It is stable as fiat and you most likely won’t lose 50% in a day. As well as much higher interest rates than fiat bank deposits.
The best overall stablecoin currently is USD Coin & Binance USD, based on volume, underlying assets, and constant audits. But it doesn’t mean it is the best to use in your particular situation. Let’s look more into it.
What is stable coin work and how does it work?
Basically, it is the same as other cryptocurrencies, but to make sure its value is stable, it is backed by something, like U.S. dollar currency, gold, or something else. That makes its rates as stable as rates of the stuff they back with basically pegging them to it.
What do companies who manage stable coins get in return?
If you give them 1 dollar, and they save it in a bank it won’t be much profitable. This is why most companies invest part of the money they received. And, depending on investment, it can be quite risky, which makes some stable coins not as stable as you think! That’s why you should always check what they use to back a coin and how it is audited and regulated to avoid a scam.
Since 2021 stable coins’ popularity are exploded, just look at this:
All top stable coins are currently pegged to the U.S. dollar but have different approaches for providing stability. So what are the best stablecoins? Let’s find out!
1. USD Coin (USDC)
Launched in October 2018 on Ethereum blockchain by Coinbase & Circle with a $52+ billion market cap. Circle itself is one of the most well-funded cryptocurrency companies and has investors like Goldman Sachs and Baidu on their list.
Pros:
- 2nd most popular stable coin which is available in a multitude of services and exchanges
- Regulated by U.S. financial institutions
- Audited monthly by Grant Thornton
- Backed by cash and equivalents and short-duration U.S. Treasuries
Others:
- Centralized
Looking at the security and popularity of this coin it is probably the best stable coin on the market.
2. Binance USD (BUSD)
Launched in September 2019 by Binance & Paxos BUSD has already a $17 billion market cap. Binance deliberately chose Paxos in partners as Paxos has a reputation for developing trusted stable coins (they actually have their own stable coin: PAXOS). Otherwise, Binance would have a hard time earning user trust, for example, Binance is registered in the Cayman Islands which doesn’t make it trustworthy.
Pros:
- Audited – Paxos monthly audits BUSD alongside Withum as prescribed
- Regulated – it was approved and regulated by the New York state department of Financial Services
- Backed by dollars at insured U.S. banks or U.S. treasury bills
Others:
- Centralized
If you are using Binance you may as well consider using BUSD as it is made a lot of effort to integrate it into every product they have. For example, on Binance Earn BUSD is the only stable coin with an interest rate almost as high as USDT.
3. Dai (DAI)
The first algorithmic Etherium-based stable coin was made in 2018 by MakerDAO. $9+ billion market cap.
Unlike most stable coins it is backed by other cryptocurrencies: Etherium and a bit of USDC and Bitcoin. Which makes it vulnerable in case of an Etherium crash hard (basically a global cryptocurrency crash).
And unlike most stable coins it is developed and regulated by the decentralized governance community MakerDAO.
Pros:
- Decentralized
- Fully transparent as it based on open-source smart contracts
- Audited before and you can audit it yourself as everything is public
Cons:
- Slightly volatile (it takes time for algorithms to correct its price)
- Had temporal problems with the rate (DAI’s “Black Thursday” Crash)
- Backed mostly by Etherium and a bit of USDC & Bitcoin which makes it acceptable to crypto crash
4. TrueUSD (TUSD)
Launched in 2018 by TrustToken on the Ethereum blockchain has a $1.3 billion market cap. It looks like one of the safest choices but is not that popular compared to other stable coins yet.
Pros:
- Audited – it is audited monthly by Cohen&Company to ensure TUSD is fully collateralized
- Regulated – TUSD was the first regulated stable coin issued in the U.S.
- Escrow – funds are held by third-party companies so TrustToken has no direct access to it
Others:
- Centralized
The company also has TrueGBP (British Pound Sterling), TrueHKD (Hong Kong dollar), TrueAUD (Australian dollar), and TrueCAD (Canadian dollar) pegged by other currencies.
5. TerraUSD (UST) collapsed on 7 May 2022
Terra is an algorithmic decentralized stable coin (similar to Dai) launched by Terraform Labs in September 2020 and growing rapidly with a $16 billion market cap already! It is running on the Terra network.
UST tokens are created by burning LUNA tokens so 1 UST is always backed by $1 LUNA. Luna itself launched in April 2019. MakerDao called UST a solid Ponzi scheme (and, based on its collapse was kinda right).
Pros:
- Decentralized
Cons:
- Backed by LUNA – which may cause it to de-peg from the U.S. dollar price in times of severe market volatility
- Not yet proven by time – even Dai is 2 years older but still not old enough to prove its stability in different market conditions
- An algorithmic stable coin may consist of some bugs and be hacked
The company also has TerraKRW (KRT) which is pegged to Korean Won and Stablecoin Terra (SDT) which tracks the price of the IMF’s Special Drawing Rights and consists of multiple currencies (U.S. dollar, Euro, Chinese Yuan, Japanese Yen, and Pound Sterling).
6. Tether (USDT)
The most popular and oldest stable coin is Tether with an $81+ billion market cap. This doesn’t correlate with its safety though, as the reputation of Tether is very controversial!
Tether Limited (based in Hong Kong) launched Tether in 2014. Owners are the same as Bitfinex exchange, which got famous after losing 120k Bitcoins, and all their clients’ got deposits cut by 30% (nice!).
At first, Tether was claiming every coin is backed by real dollars in their bank. In 2019 New York attorney general discovered that it is not true. It was discovered that in 2018 Tether sent $625 million to Bitfinex, which lost 1 billion dollars because it was stored in a shady Panamanian bank(Crypto Capital Corp) which lost control because of the problems with the police. Oh yeah, it was transferred without any agreements.
Since 2017 Tether was promising to reveal its audit results but was postponing it every time. Some hedge funds in 2022 are making bets that it will crash very soon.
So, I guess, there is a real chance of the crash happening, then what will it look like? Probably it will fall down like 10% on the first news, then arbitrageurs will start buying these cheap tokens and exchange them for dollars directly from Tether. Till Tether still has money to pay them. After it will end, it will go down fast and hard.
It may never happen as well, but there is a possibility. Which you should always consider while buying USDT.
Pros:
- Best liquidity and availability on most platforms, even small ones
- Longest track record since 2014
Cons:
- Not audited but disclosed reserves with assurance by Moore Cayman since 2021
- Questionable business practices – as described above
- Questionable backing of the coin – 44% are U.S. Treasury Bills, 9% in bank deposits and money market funds which looks secure, but there are 31% in corporate bonds for up to a year which can be Chinese bonds and 16% in loans to some undisclosed firms, longer bonds, precious metals and vague investments including digital tokens, which may hide big surprises as well.
Other:
- Centralized
Also, you may research Tether imploding in October 2018 and the hack that caused it to lose $32 million. But it was back in the game after every mishap.
I guess, now you will probably agree with me that Tether is definitely not the best stable coin on the market, just happens to be the most popular one.
Tether also offers Tether Gold (XAUT) – a stable coin pegged to the gold price, Tether EURt (EURT) pegged to Euro, and Tether CNH (CNHT) which is pegged to Chinese Yen.
Others
There are too many stable coins to review, but I would like to add shortly couple more you may wanna know about:
Pax Dollar (USDP) – a stable coin from Paxos which helped to create Binance USD coin. It was launched a year earlier than BUSD in September 2018 but remains less popular.
Neutrino USD (USDN) – algorithmic stable coin backed by WAVES launched in 2019
Fei USD (FEI) – decentralized stable coin launched in December 2020 which uses Ethereum as collateral.
Frax (FRAX) is a stable coin which partially backed by collateral and partially stabilized algorithmically.
STASIS EURO (EURS) is a Euro-based stable coin on the Ethereum blockchain which is backed by cash with advanced audits and daily transparency reports
Digix Gold TokenDGX – stable coin on Ethereum blockchain which is backed by gold. Basically, crypto-gold.
CryptoFranc (XCHF) – pegged by Swiss Franc, monthly audited, and running on Ethereum blockchain
What is the difference between decentralized stable coins and centralized?
Centralized coins are issued by some companies, which are regulated by their governments. This means if you will buy coins directly from those companies their government will know who bought coins and theoretically may freeze or confiscate your coins depending on their political agenda (if you bought it anonymously via some exchange it won’t apply though).
Decentralized coins are usually maintained by software or smart contracts, which allows them to be the most transparent, but holds risks if some critical bugs and errors will be found.
So which stable coin to use for long-term investments?
Audited and regulated stable coins are the best for long-term investments and a good night’s sleep. For example USDC, BUSD and TrueUSD.
Which one exactly to choose will depend on the platform and type of investing, staking rewards you may see here.
On the platforms like Binance Earn the choice is currently only between USDT and BUSD. Interest rates are not that different so BUSD will be a much safer option.
Other loan platforms like YouHodlr, Nexo, and others, support much more coins but be careful as these platforms are not transparent to investors on how exactly they are making the money.
