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[Delio] How Stable are Stablecoins? Full Guide for Your Stable Income

Stablecoins have been around since 2014 since the first launch of BitUSD, the first stablecoin. The market cap of the top 10 stablecoins surpassed $160 billion in March 2022, and Tether (USDT) became the 3rd largest cryptocurrency with an over $67,5 billion market cap value as of August 30.

Stablecoins are in the spotlight due to their rapid growth, increasing global use cases, and potential financial risk contagion channels. This article analyses the role played by stablecoins within the wider crypto-asset ecosystem and finds that some existing stablecoins are already critical to liquidity in crypto-asset markets.

The basics about Stablecoins:

Stablecoins are non-volatile (fixed price) crypto assets (cryptocurrencies) that are pegged to an external, real-world asset.

In other words, aside from Bitcoin and altcoins, a stablecoin is another digital currency that is pegged to a “stable” reserve asset like the U.S. dollar or gold.

How stable are stablecoins and how do they maintain their price?

In order to maintain a straight one-to-one peg to a more stable underlying asset, such as a national currency, stablecoins are digital currencies. Some of the most well-known stablecoins available are anchored to the US dollar or a certain commodity. Stablecoins are utilized to help control the volatility in the cryptocurrency market due to their intended price stability.

Stablecoins improve the usefulness of volatile cryptocurrencies and increase market liquidity by allowing traders to easily enter and exit crypto transactions. When managing crypto price fluctuations becomes challenging, market players might employ stablecoins thanks to the direct peg to a more stable asset.

Analyzing the pros and cons of stablecoins

Stablecoins are a popular option for crypto investors as they offer numerous benefits of using it. In general, stablecoins are known for simply outperforming fiat currencies in terms of speed, cost, transparency, borderlessness, and programmability.

Below we discuss some of the stablecoins the most crucial advantages and disadvantages:

Pros:

The better alternative of fiat currency:

Stablecoins allow a quicker and easier way for investors to enter the crypto market by bridging fiat into stablecoins, which act like fiat currencies on exchanges.

Cross-board currency:

Unlike USD or any other national currency, stablecoins such as Tether can be traded without limitation by geographical boundaries.

Cons:

Centralization:

Stablecoins do have a centralizing character, especially when it comes to the assets’ backing, whereas blockchain technology and cryptocurrencies celebrate the idea of being decentralized. It takes a team that tilts the operation further toward a centralized structure to guarantee that each currency in circulation is backed by an equivalent reserve value.

Stability:

Despite the name stablecoins, they are not as stable as they may seem on the first sign. However, the volatility is stable in most cases, the latest case of debugging TerraUSD stablecoin in a couple of days has shaken investors’ confidence in the project, leading it to massive selloffs and the eventual price of $0.

What are the types of stablecoins?

Fiat-backed:

Cryptocurrency is backed up by fiat money and is one of the common forms of stablecoins. Simply put, it’s somewhat a digital form of fiat money.

Ex: Tether, Gemini

Commodity-backed:

This type of coin is backed up by commodities such as gas, gold, valuable metals, etc. Here, all these commodities will always have a stable value on the network.

Ex: Paxos Gold

Cryptocurrency-backed:

Cryptocurrencies backed up this type of stablecoin. Usually, these coins are backed up by a mix of different cryptocurrencies, instead of single crypto. This structure prevents any volatility risks.

Ex: Synthetic

Non-collateralized (Seignorage-style):

This type of stablecoins don’t have any assets to back them up; rather they use an algorithm to burn or add crypto to stabilize the value.

Ex: Kowala

The best stablecoins right now?

Stablecoins are not all made equal. With the rising number of stablecoins, it is beneficial to be aware of the best and most solid options. According to market cap, these are the top stablecoins available today:

Tether (USDT):

As the name speaks for itself, it “tethers” the value of the stablecoin to the value of the USD. Tether is backed by gold, traditional currency, and cash equivalent.

Current position by the market cap: 3rd

USD Coins (USDC):

A stablecoin known as USD Coin is supported by Coinbase, the largest Bitcoin exchange and broker in the world.

Current position by the market cap: 4th

Binance USD (BUSD):

Binance, a cryptocurrency exchange, also unveiled a Binance USD that is paired 1:1 with the dollar.

Current position by the market cap: 6th

DAI:

Dai was founded in 2017 and is maintained and regulated by Maker DAO, a decentralized autonomous organization (DAO) composed of the owners of its governance token, MKR, who may vote on changes to certain parameters in its smart contracts to ensure the stability of Dai.

Current position by the market cap: 14th

What is the best place to trade stablecoins?

Stablecoins are accessible on any sophisticated cryptocurrency trading platform alongside unpegged cryptocurrencies. Having this instrument ready is a wise choice for protecting money and maintaining portfolio value, regardless of whether you are an aggressive trader or a long-term investor.

Delio offers a variety of services for stablecoins, from investment to a trading platform to meet users’ needs.

As such, Delio provides Delioswap (Decentralized coin exchange) to conveniently trade stablecoins and altcoins with additional rewards.

Learn more about Delioswap:

Delioswap — A Unique Swipe of Cryptocurrency Exchange

Aside from the savings service, Delio offers a Savings service with one of the highest APR of up to 10% for USDT and USDC, the most popular and widely used stablecoins.

Learn more about Delio Savings Service:

Delio Savings

Recent Stablecoin Breaking news:

Due to recent cryptocurrency popularity and rapid growth, more and more businesses are implementing crypto in their day-to-day life. Here is the most recent stablecoin roundup:

Argentina Accepts Tax Payment in Crypto

Mendoza, Argentinian Province, is the first province in the country to put in place a mechanism that enables taxpayers to pay all of their taxes in full using USDT, USDC, and DAI.

Read more: https://medium.com/@delio-io/delio-argentina-accepts-tax-payment-in-crypto-dfa69d54154a

Brazilian Brokerage Platform to Offer Crypto Services

Rico, a Brazilian brokerage platform and a subsidiary of XP Inc., announced its intention to enter the crypto industry next year and provide crypto-backed services.

Read more: https://medium.com/@delio-io/delio-brazilian-brokerage-platform-to-offer-crypto-services-23e48aaf609c

Crypto Trading Pairs: ETH-BUSD Zero-Fee Transactions & DOGE-ETH Bridge

Binance, a cryptocurrency exchange, announced that it will enable Binance USD-Ethereum transaction zero-fee trading starting from August 26.

Read more: https://medium.com/@delio-io/delio-crypto-trading-pairs-eth-busd-zero-fee-transactions-doge-eth-bridge-ca852dd1a83e

Final thoughts:

Should you invest in stablecoins?

Stablecoins may be helpful to you if you can swiftly and easily redeem them and you have faith in the issuer. In other words, you might be able to utilize this in place of dollars in your bank account if you don’t mind the centralization risk of a fully-backed coin. Since algorithmic coins are not completely backed, they carry a higher risk of losing money as a result of market forces.

Anything else to consider before investing in stablecoins?

A controlled cryptocurrency called stablecoins has the unique property of being stable against the dollar. It is significantly more useful in that regard than practically every other coin since at least there is a peg to a lot of people’s units of account. Although the fully backed currencies are centralized, they are extremely upfront about it and don’t claim to be decentralized as many other altcoins do.

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Delio

Delio

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Delio Digital Asset Finance Group, established in 2018, is №1 fintech company based in Seoul and acquired digital asset licenses from Korean and US governments.