Rise and fall of different stablecoins — which stablecoin to choose?
Stablecoins are meant to be an alternative to regular cryptocurrencies that is less volatile. Stablecoins are a key part of the cryptocurrency economy. They are cryptocurrencies that are designed to keep their value stable by being pegged to a more stable asset, like a national currency.
In particular, a lot of the most popular stablecoins are tied to the U.S. dollar. Their existence also makes it possible for more digital assets to be traded on crypto exchanges, which makes the crypto market more liquid.
Stablecoins don’t always work the way they should, though: On May 9, TerraUSD (UST), the third-largest stablecoin, started to violently “de-peg” from the U.S. dollar. Over the next few days, large blocks of UST were sold, which caused a lot of fear.
Here are some alternative stablecoins to think about:
Tether is the most traded and liquid stablecoin on the crypto market and the world’s first stablecoin. Tether is the third-largest cryptocurrency after Bitcoin (BTC) and Ethereum’s Ether, with a market capitalization of over $80 billion (ETH). Tether was formerly known as Realcoin when it was launched in 2014 by Brock Pierce, Craig Sellars, and Reeve Collins.
This stablecoin’s objective is to maintain a 1:1 parity with the U.S. dollar. Tether, however, broke its peg to the U.S. dollar in May, but it traded as low as 96 cents rather than 30 cents. Tether’s liquidity and widespread usage — many crypto exchanges provide USDT as an alternative to fiat currencies so that investors can make speedy trades — make it one of the top stablecoins, but investors should be mindful of this recently recognized risk of de-pegging. Tether purports to be backed by reserves such as cash, currency equivalents, and commercial paper, although it has been criticized for lacking transparency.
Dai is a stablecoin supported by the Ethereum-based MakerDAO system. Dai, like many stablecoins, is tied to the U.S. dollar. However, unlike many stablecoins, Dai can also be collateralized or backed by other cryptocurrencies, such as Ether, USD Coin (USDC), and others that can be used as collateral. The multi-collateral option and the transparency provided by smart contracts that Dai employs to acquire sufficient collateral may enhance Dai’s price stability as a stablecoin. In the MakerDao community, users can vote for additional collateral alternatives. The market capitalization of Dai exceeds $6 billion, making it one of the most valuable stablecoins available to consumers.
Binance USD (BUSD)
BUSD is an additional stablecoin backed by the U.S. dollar that is sanctioned by the New York State Department of Financial Services. Users can buy BUSD with a single U.S. dollar. Binance, one of the most popular cryptocurrency exchanges, and Paxos, a regulated blockchain infrastructure platform, collaborated to create BUSD. The objective of Binance USD is to accelerate the flow of digital assets across the global financial network. BUSD is the native stablecoin of the Binance exchange, allowing users to effortlessly enter and exit crypto transactions without needing to wire fiat currency from their online wallet to conduct crypto trades.
USD Coin (USDC)
USDC was created in partnership with cryptocurrency exchange Coinbase Global Inc. (ticker: COIN) and Bitcoin mining company Bitmain Technologies Inc. It is pegged to the U.S. dollar, like many of the other coins on this list. Released in September of 2018, USDC has a market worth of almost $50 billion, making it the second-largest stablecoin by this metric. Since its inception, USDC has been utilized by applications and enterprises, and it operates on a variety of blockchain networks. Numerous crypto exchanges, online wallets, protocols, and other services are integrating USDC into their platforms in order to ease simple global payments.
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