To put it simply, a stablecoin is a cryptocurrency that is pegged to another stable asset, like the US dollar. It isn’t tied to a central bank; however, it is still global. This has huge benefits, including allowing you to use cryptocurrencies to pay for everyday things.
Stablecoins are also a lot less volatile than certain cryptocurrencies, where it is common to see daily increases and decreases of around 10-20%. This allows them to be a much more usable store of value, unit of account, and medium of exchange. Even while the crypto market is falling heavily to the downside, stablecoins are a good store of value during periods of volatility as they can protect investors from crypto going down.
The bottom line is, stablecoins are sorely needed. They are like the holy grail of crypto. They are beneficial to use in the short term as they can be a much better bet than losing money in a correction.
However, because of the volatility of the crypto market, most stablecoins in the history of crypto markets haven’t done that well. Therefore, it is important to do your research before you use stablecoins long term. There are a number of stablecoins in circulation today. Here is a list of the top 5 stablecoins, listed on http://stablecoinindex.com/
This is the largest stablecoin and is backed by cryptocurrency exchange Bitfinex, which is an esteemed cryptocurrency exchange that enables users to buy and sell a wide range of digital assets like Bitcoin and Ethereum. You can read the beginner’s guide to Bitfinex here. However, it has faced some controversy due to rumours of insolvency (not having the money in the bank to back the amount of Tether in circulation). Read more here.
TrueUSD is the second biggest stablecoin in terms of market cap with a volume of $38 million. TrueUSD is a USD-backed ER20 stablecoin that is fully collateralised and legally protected. It uses multiple escrow accounts to reduce counterparty risk. It is also the first asset token to be built on the TrustToken platform, a platform which creates asset-backed tokens which are easy to buy and sell around the world.
Paxos, created by the blockchain start-up Paxos, was launched in September 2018. It has regulatory backing from New York and has been approved and regulated by the New York Department of Financial Services. The stablecoin was designed to provide liquidity for investors who are trading in crypto assets. This is done by providing a digital alternative to cash where instant transaction settlements can still be seen.
USD Coin, with a $189.16 million market cap, is listed as the fourth biggest stablecoin. It is an open source, smart contract-based stablecoin founded by Circle and Coinbase. It is a fiat-backed stablecoin which aims to bring stability to crypto. It creates possibilities in payments, lending, investments, trade finance, and trading.
Dai is interesting as it’s not backed by fiat currencies like the others. Instead, it’s backed by Ethereum, which can be viewed on etherscan, a block explorer. It is an asset-backed, hard currency for the 21st century. This stablecoin is also backed in excess by collateral which means you never have to worry about its value moving up or down.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.