Stablecoins: different types and where to buy them

A stablecoin is a cryptocurrency with a stable exchange rate that is backed by a real-world asset or supported by an algorithm. On the crypto market, there are stablecoins pegged to fiat currencies, as well as those backed by real-world assets, such as precious metals, natural resources (oil, gas etc.) or real estate.

By type of backing, stablecoins could be divided into several groups:

🔹 Centralized. Stablecoins of this type are controlled by an organization or a company. This is the most popular type of stablecoin on the market. Example: Tether (USDT).

🔹 Decentralized (overcollateralized). In this type of stablecoin, the value of its backing (collateral) exceeds that of minted stablecoins. An example is MakerDAO (DAI). To bring DAI to the market, a user needs to provide collateral in other crypto with a value corresponding to at least 150% of minted DAI.

🔹 Non-collateralized (algorithmic) stablecoins. These are minted without any backing. The exchange rate of algorithmic stablecoins is determined by market demand and supply and supported by an algorithm that incentivizes market participants to buy or sell the stablecoin. Example: UST issued by the blockchain platform Terra.

🔹 Partially collateralized. This type of stablecoin is partially backed by collateral and partially supported algorithmically. An example is Frax, a system with two tokens, including a stablecoin, Frax (FRAX), and a governance token, Frax Shares (FXS).

The most popular stablecoins

USDT is a token issued by the company Tether Limited and pegged to the US dollar in a 1:1 ratio. This stablecoin is available on many blockchains.

USD Coin (USDC) is a stablecoin with a 1:1 peg to the US dollar. This token is minted by users through depositing an equivalent amount in US dollars. Deposit information is written to a smart contract.

Binance USD (BUSD) is a stablecoin pegged to the US dollar in a 1:1 ratio and supported by the crypto exchange Binance and blockchain infrastructure platform Paxos (a U.S. regulated trust company specialized in storage and protection of physical and digital assets). BUSD is approved by the New York State Department of Financial Services (NYDFS).

TerraUSD (UST) is an algorithmic stablecoin built in the Terra ecosystem. The cost of minting UST is equivalent to the stablecoin’s value, which means that to mint 1 UST, you need to burn reserve assets valued 1 USD.

Dai (DAI) is a stablecoin pegged to the US dollar and issued by the Maker platform. Any Ethereum-based assets can be placed as collateral. Based on the collateral’s value, DAI coins are minted. If necessary, a user can exchange their DAI back into the original assets, and the stablecoins will be burnt.

DragonFi offers all of the above stablecoins. The service enables you to easily buy stablecoins for fiat, exchange them for any tokens using a centralized swap (a transaction for exchanging one crypto for another that can be executed instantly and without intermediaries), as well as earn by lending assets to other users (repayment of each loan is guaranteed by collateral and smart contract logic imbedded in the protocol) or collect an income from providing liquidity to to DeFi services.