In the world of crypto, massive price movements in the market are normal. At the time of writing , Bitcoin is down 6.3% while Ethereum is down 11.4% in a single day. In such a volatile market, stablecoins provide an interesting alternative. They offer almost perfect stability by pegging their token to a specific asset, usually the dollar. So which stablecoins should you look out for in 2022?
What Are Stablecoins?
Stablecoins are crypto tokens that fix their value to another asset. The most popular stablecoins “peg” themselves to the US dollar. Stablecoins take away the risk element of price movements in crypto, while still offering the benefits of digital transactions. This makes them a more appealing option than traditional tokens as a means of exchange.
These tokens bridge the gap between digital payments and fiat currencies, offering the best of both worlds. There are different methods stablecoins can use to maintain their peg with the underlying asset.
- Algorithmic Stablecoins – These coins use algorithms and smart contracts to control their value. Similar to a central bank, they change the supply of the coin based on the underlying asset’s price. Unlike a central bank, however, no centralised authority controls the supply.
- Fiat-backed Stablecoins – These stablecoins maintain reserves of a government-backed currency as collateral. Their holdings ensure the peg between the token and currency is not broken. The reserves are regularly audited by independent parties to verify the operations of the coin.
- Crypto-backed Stablecoins – These are coins backed by other crypto tokens. Since the underlying token is also highly volatile, reserves are held in excess. This allows the stablecoin to maintain the peg even if there is a large movement in the underlying asset.
Most Popular Stablecoins in 2022
The following list sorts the most popular stablecoins as of writing, based on their market capitalisation.
- Tether (USDT) – $67.55 Billion
- USD Coin (USDC) – $52.22 Billion
- Binance USD (BUSD) – $19.3 Billion
- Dai (DAI) – $6.93 Billion
- TrueUSD (TUSD) – $1.1 Billion
- Pax Dollar (USDP) – $945.26 Million
- USDD (USDD) – $744.3 Million
- Neutrino USD (USDN) – $672.75 Million
- Fei USD (FEI) – $419.07 Million
- Gemini Dollar (GUSD) – $313.9 Million
The total market capitalisation of stablecoins is $153 Billion. Compared to the market capitalisation of the entire crypto market of $1 trillion, stablecoins make up more than 15% of the value in the crypto space.
Top 3 Stablecoins: Explained
Tether is one of the first stablecoins on the market. Originally launched as Realcoin in 2014, It was a coin built on the Bitcoin blockchain. Today, Tether supports Bitcoin, Ethereum, Tron, Algorand, EOS and OMG blockchains.
Tether wishes to combine the benefits of crypto tokens with the risk-free nature of fiat currencies. This allows seamless transactions without worrying about sharp price movements in the crypto token used.
Tether is committed to transparency. To fulfil this, they share a breakdown of their reserves, audited by trusted third parties. A majority of their holdings are in cash and cash equivalents, including US treasury bills, cash and bank deposits and commercial papers. They also hold corporate bonds, secured loans and other digital tokens.
In the last year, the USDT price has only fluctuated by 2.5% with a low of $0.99 and a high of $1.02
Read more: Difference Between USDT and USDC
USD Coin (USDC)
USDC calls itself a “digital dollar”. It is secured using cash and short-term US treasuries. This enables them to offer a 1:1 conversion, which means you can convert any USDC you have into US dollars. The reserves are held in the custody of many US financial institutions. This is also audited every month for transparency.
USD Coin was launched in late 2018. They intend to simplify digital transactions in a world moving towards being cashless. Their goal is to have USDC accepted by as many businesses, services and dApps as possible.
The coin is managed by “The Centre Consortium”. This includes a payment services company Circle and crypto exchange Coinbase.
In the last year, USDC price has fluctuated over 58% with a low of 0.98 and a high of $2.35. However, in the last few months, it has maintained its peg more closely and stays near $1.
Binance USD (BUSD)
Launched in 2019, Binance USD is a 1:1 backed stablecoin. It was founded by crypto exchange Binance and crypto financial institution Paxos. Like other fiat-backed stablecoins, Paxos holds reserves that are equal to the number of BUSD tokens in circulation.
BUSD is a bridge between traditional and decentralised finance. It helps protect individuals from inflation and price changes when using DeFi applications. BUSD also enables its users to engage in yield farming and liquidity pools. This allows users to earn passive income while being protected from other market uncertainties.
The stablecoin operates under rules set by the New York State Department of Financial Services. Paxos also has the right to mint or burn BUSD at any time. In addition, they can also freeze or remove accounts from users with suspicious activity.
Stablecoins offer a compelling alternative to the volatile crypto tokens in the market. They combine the ease of transacting in crypto with the stability and security of fiat currencies. While there are different types of stablecoins, the ones with the highest market capitalisations are fiat-backed. If you’re looking for new investments in the crypto space, stablecoins and their passive income opportunities can be a great addition to your portfolio.