Stablecoins are becoming increasingly popular thanks to their ability to combine the transparency, security, and privacy of a digital asset with the stability of a traditional currency.
Since Tether released the first fully-fledged stablecoin back in 2015, a whole array of other stablecoins have been created.
We’ve produced a list of the most successful and popular stablecoins below, but first here’s a recap of what stablecoins are.
What are stablecoins?
Stablecoins are a type of cryptocurrency that are designed to be immune from market volatility, making them a more useable form of payment than traditional crypto. Stability is created by pegging the value of stablecoins to other ‘stable’ assets such as fiat currencies or gold.
Stablecoins have become an important source of liquidity in the crypto market because they aim to maintain a steady price. They are used to buy cryptocurrencies on exchanges that don’t accept fiat or as a ‘safe haven’ store of value for when other crypto assets witness large price swings.
Stablecoins fall into four broad categories: fiat-collateralised stablecoins, commodity-collateralised stablecoins, crypto-collateralised stablecoins, and non-collateralised stablecoins (which aren’t backed by anything).
Hundreds of stablecoin projects have been announced over the past few years – to varying degrees of success. These are some of the most successful and popular stablecoins today:
With a market cap of £3.57 billion, Tether is not only the largest and most well-known stablecoin, but it also ranks at number five in CoinMarketCap’s list of the top 100 cryptocurrencies by market capitalisation.
Tether was created to be a quick and cheap way of transferring value from one exchange to another. It essentially acts as a bridge between fiat currencies and cryptocurrencies.
It is pegged against the US dollar and maintains a 1:1 ratio in terms of value.
However, Tether has gained its fair share of controversy. In mid-2018, several fraud allegations hit Tether, sending its price from $1 per token to 85 cents.
It has also been accused of manipulating the markets and issuing millions of tokens without a proper audit process in place.
Despite this, Tether has retained its crown as the king of the stablecoin market.
USD Coin (USDC)
The brainchild of the CENTRE consortium, co-founded by Coinbase and Circle, USD Coin aims to be a stablecoin with financial and operational transparency.
It is pegged to the US dollar in a 1:1 ratio and is available on all the major crypto exchanges.
USDC is an ERC-20 token that runs on the Ethereum network, thereby enabling dollars to be moved anywhere in the world in mere minutes for very little cost.
The US dollar reserves for USDC are audited every month by accounting firm Grant Thornton.
TrueUSD has made a name for itself as one of the most reliable and proven stablecoins. The first independent audit of TrueUSD, conducted in March 2018, revealed that it is backed by almost $1.8 million in reserve.
The US dollar-backed ERC-20 stablecoin is fully fiat-collateralised and transparently verified by third parties, who publish their reports regularly via Twitter. It also offers legal protection against misappropriating underlying USD.
TrustToken, the platform that creates the stablecoin, has partnered with registered fiduciaries and banks to store the funds backing the TrueUSD tokens.
Instead of being backed by US dollars in a bank account, DAI is backed by collateral on the Maker platform. It runs on Ethereum and attempts to maintain a value of $1.
Since all operations are run by the Ethereum smart contract, DAI is seen as more transparent and fair than centralised stablecoins. Only users can create and destroy the token.
It uses margin trading to respond to changing market conditions and preserve its value against the major world currencies.
Paxos Standard (PAX)
Launched by the Paxos Trust Company, PAX is a regulated stablecoin that has been approved by the New York State Department of Financial Services.
The ERC-20 token is backed by the US dollar in a 1:1 ratio, with corresponding US dollars held in reserve at FDIC-insured US banks.
Paxos tokens only remain in circulation for as long as there are corresponding US dollars being held in reserve. When PAX are redeemed for USD, the tokens are destroyed.
PAX has been one of the industry’s most quickly adopted cryptocurrencies and it is available on over 40 exchanges.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.