Although relatively new, stablecoins have become important in the cryptocurrency ecosystem, gradually developing a bridge between fiat and cryptocurrencies. Over the last twelve months, thousands of people have searched for what is the best stablecoin as they seek to understand more about stablecoins as assets. Today, stablecoins account for over 90% of the daily crypto trading volume. If you want the best stablecoin, this article describes what they are and the top five stablecoins to buy.
What are stablecoins?
Stablecoins are cryptocurrencies whose value and price are tied to the price of a traditional fiat currency such as the US Dollar, Euro, and Pounds. Examples of stablecoins are Tether USD (USDT), Binance USD (BUSD), and USD coin (USDC). One of the major concerns of crypto users is the volatility of cryptocurrencies. Volatility is also a crucial issue for crypto regulation and adoption. That is the main reason why stablecoins exist. The price of other cryptocurrencies is volatile; traders risk losing profits if prices fall. The need arose for a stable cryptocurrency, one immune to volatility. In the end, several creators rolled out cryptocurrencies pegged to fiat currencies in value, which quickly became popular in the crypto ecosystem. Stablecoins help traders secure profits, transfer, and store assets in digital wallets and facilitate the best stablecoin staking. Because they are pegged to currencies, regulators are increasingly scrutinizing stablecoins to impose regulations. What is the best stablecoin 2023?
How do stablecoins work?
Knowing how stablecoins work is crucial to knowing which stablecoin is best for you. All stablecoins are pegged to fiat currencies, but based on the different working principles, there are three main types of cryptocurrencies:
- Custodial stablecoins: custodial stablecoins are backed by off-chain assets, typically supplied by the issuing company. Deposits of equal value with the stablecoins are made, and the issuer issues stablecoins as tokens backed by the deposits of fiat currency, often in a 1:1 ratio. Examples are USDT, PAX, GUSD, and TUSD.
- Algorithmic stablecoins: These are stablecoins that are not backed by deposits of other currencies. Instead, a logarithm-smart contract protocol manages the circulation of the stablecoins, increasing and decreasing circulatory supply to stabilize the price of the stablecoin. Examples include UST, RAX, TOR, MIM, and USDN.
- Collateralized stablecoins: They are backed by on-chain deposits of other cryptocurrencies, held as collateral for the stablecoins. Examples are DAI for on-chain stablecoins.
So, what is the best stablecoin in crypto?
Tether (USDT)
Tether USD is a stablecoin created by iFinex, a Hong Kong-based crypto company. It was first created in July 2014 as RealCoin. The company renamed RealCoin to USDT in November 2014 as part of rebranding moves. The coin launched in the crypto market in 2015 and has since developed into the most valuable cryptocurrency stablecoin. USDT was deployed on the bitcoin blockchain network, but as it expanded, it added other blockchains such as Ethereum, TRON, Solana, Algorand, etc. As of writing, USDT is the most valuable stablecoin with a market capitalization of $69 billion. USDT is possibly the best stablecoin 2023 because it ranks third in the most valuable cryptocurrencies and holds over 90% of stablecoin transactions. USDT is also the most-traded stablecoin as part of crypto trading pairs. Because it is backed by physical fiat deposits (as stated on the website), USDT maintains a stable price in the market, and many traders consider it the best crypto stablecoin for trading, withdrawal, and storage of crypto assets. In February and October 2021, iFinex reached settlements with New York City and the U.S. Commodity Futures Trading Commission (CFTC) to pay fines for legal issues concerning the legitimacy and status of the deposits backing USDT.
USD Coin (USDC)
USDC is a dollar-pegged stablecoin that is backed by physical dollar deposits, 1:1. USDC is owned by Circle, a cryptocurrency company, in September 2018 following months of work and an announcement. The stablecoin was anticipated as a competitor for USDT, another tokenized dollar cryptocurrency. Although built on Ethereum, USDC works with eight native blockchains; Ethereum, Solana, Avalanche, TRON, Algorand, Stellar, Flow, and Hedera, and accepts integrations with many other blockchain forks. It took under four years for USDC to hit $52 billion in circulation, with a $52.4 billion market capitalization. Many investors often ask what’s the best stablecoin between USDC and USDT because of their interesting use cases. USDC’s off-chain integrations with companies such as Visa provide payment services to a wider range of people. USDC is considered stable because its value is pegged to the US dollar, and every deposit transaction is backed by a physical dollar deposit. The stablecoin carries less risk than other cryptocurrencies due to less volatility. However, there’s a general risk with cryptocurrencies. Circle, the parent company of USDC, has achieved regulatory compliance, easing USDC adoption.
Binance USD (BUSD)
BUSD is probably the best USD stablecoin in the crypto market. BUSD is a stablecoin issued in 2019 by Binance, a cryptocurrency company, in partnership with Paxos. Binance also owns the popular Binance crypto exchange. BUSD is an ERC-20 token (built to Ethereum standard) and supports the popular BEP-20 standard. The stablecoin is pegged to the US dollar, exchanging at 1:1. BUSD is approved and regulated in the US by the New York State Department of Financial Services. It works on all blockchains compatible with the ERC-20 standard. BUSD has an $18.82 billion market capitalization, making it the third most-valuable stablecoin after USDT and USDC. BUSD is popular and ranks among the first six cryptocurrencies today. Despite the risks associated with cryptocurrencies, BUSD has remained safe, becoming a choice for crypto owners. Many crypto holders recently moved their assets from USDT to BUSD due to the latter’s popularity on the Binance Smart Chain. BUSD perhaps answers the question of what is the purpose of stablecoins best because it has become integral to crypto transactions, but for spot trading and peer-to-peer transactions. As part of Binance’s future projects, BUSD is expected to play a vital role in the crypto ecosystem.
Dai (DAI)
In November 2019, MakerDAO, a decentralized autonomous organization (DAO), launched Dai. Dai is a multi-cryptocurrency-backed stablecoin created on the Ethereum blockchain. Dai is run by a smart contract that enforces the rules for the MakerDAO. Dai is soft-pegged to the US dollar and is backed by deposits of several cryptocurrencies into a virtual vault controlled by the MakerDAO. Each time a DAI token is minted, the smart contract executes an instruction to deposit an equivalent amount of the other cryptocurrencies in the vault. Thus, each Dai token is collateralized by other cryptocurrencies and maintained by the Maker protocol. Dai’s development is controlled by holders of the MAKER (MKR) token, the governance token of the MakerDAO. MKR holders participate in county votes to make and implement decisions about Dai. The smart contract then enforces each decision. Dai is the largest stablecoin that’s not backed by traditional fiat assets. The stablecoin has two main advantages; its dollar-pegged price and the democratic protocol governing its development. The crash of Terra USD (UST) affected Dai, but the latter rebounded to a premium price and has maintained a regular price since then.
True USD (TUSD)
TUSD is a stablecoin launched in 2018 by TrustToken, a US-based crypto firm. TUSD is a dollar-backed stablecoin that TrustToken describes as the first fully-regulated stablecoin in the crypto market. TUSD aims to improve the crypto market liquidity by providing a stable token for storing assets. The stablecoin is backed by the US Dollar in a 1:1 ratio, with physical deposits. TUSD currently ranks 42 on the cryptocurrency list and is the fifth largest stablecoin by market capitalization. It has a market cap of $1.2 billion and a current daily trading volume of $137 million. TUSD’s unique advantage is that the TrustToken company balances the stablecoins deployment with security through regular attestations. TrustToken is big on independent verification as a factor for the success of stablecoins, resulting in corporate partnerships to provide financial services through its tokenized platform. TUSD has not been the subject of any economic issues with the government, but like every other stablecoin it carries the same risk as the crypto market. However, the risk is significantly reduced because there is no significant volatility. TUSD may be regarded as the best stablecoin by many because of its regulatory policies.
Stablecoins Compared
This short table compares the five biggest stablecoins in the crypto market today:
Are stablecoins safe?
If you are asking what is the best stablecoin, know that all stablecoins carry the associated cryptocurrency risks. They have unique advantages based on the use cases, features, and partnerships. Stablecoins are considered more secure than other cryptocurrencies because they are pegged to fiat currencies, but there is no general consideration for the individual security of each table coin. That will depend on the company issuing the stablecoin, the type of backing it has, and the possibility of future regulations. Crypto users believe that stablecoins, with the possibility of regulations, will take up a larger market share. But if there’s a likelihood of future regulations negatively impacting stablecoins, then the risk becomes significant, and crypto holders will have to re-evaluate their stand.
But there’s a way to earn stablecoins without actively trading or purchasing. It is bitcoin hosting mining. You can convert your profits from mining Bitcoin to a stablecoin which you can sell for fiat or transfer to your crypto wallet.
Originally published at https://minery.io.
