Stablecoins are the new biggest thing in the crypto market and are looking to shake up the financial world, but which is the best stablecoin? In this article, we cover the basics of what you need to know about stablecoins and show you which stablecoins we think are the best so that you can be ready to buy your first stablecoin as fast as possible.
Table of Contents
What are stable coins?
Stablecoins are a type of cryptocurrency that have their value tied to real-world assets or currencies. For example, some stablecoins are pegged to the US dollar, while others are tied to the value of gold. What this means is that the stablecoin’s value should only fluctuate alongside the asset it is tied to. This results in a cryptocurrency that has far more stability than other, more volatile, cryptocurrencies; allowing investors to hold funds in the crypto system without the risk of intense fluctuation in value.
How do stablecoins maintain their stability? You’ll usually find that stablecoins remain stable in one of two ways. They may be backed by a reserve of the asset they represent (e.g. USD) or they may use algorithms that are built to prevent their currency’s value from fluctuating excessively. However, there are a wide variety of stablecoins which will function in different ways and be pegged to different assets. It’s important to choose the right one for you, so make sure to research your chosen coin before buying.
Feeling overwhelmed by all the stablecoin choices? Don’t panic! In this section, we go over some of the most popular stablecoins on the market so you can choose the best stable coin for you.
USDT is one of the most popular stablecoins on the market. Pegged to the US dollar, this Ethereum-based token pioneered the concept of stablecoins and has become the most widely adopted stablecoin to date. Tether maintains its stability by being backed by bank reserves and loans which match or exceed the value of USDT in circulation.
Binance USD (BUSD)
BUSD is another popular stablecoin that is pegged to the US dollar 1:1. This means that for every unit of BUSD, there is 1 US dollar in reserve. BUSD was founded by Paxos and Binance and is easily accessible through their platforms. One of the main draws of BUSD is that Paxos releases regular audits, proving that the U.S. dollar reserves match the supply of BUSD 1:1. This allows crypto users to have peace of mind when it comes to the stability of the coin.
USD Coin (USDC)
Created with the assistance of Coinbase, USDC is backed by dollar-denominated assets of equal fair value to the USDC in circulation, in segregated accounts within a US regulated financial institution.USDC is often described as a safer stablecoin since its creators make a greater effort to comply with audits and governmental regulations, and have transparent, fully-backed reserves.
Paxos dollar (USDP)
Previously called the Paxos Standard Dollar (PAX), USDP is another stablecoin running on Ethereum. The company behind the token, Paxos Trust Company, claims to hold reserves in USD that fully back each USDP. The reserves are held in cash and cash equivalents, with Paxos being committed to regulations and transparent operations.
Dai was created by MakerDAO, a decentralised autonomous organization, and was the first decentralized, collateral-backed cryptocurrency. Unlike the coins we’ve discussed previously, Dai relies on smart contracts to keep the value of DAI as close to USD as possible. This means that DAI is collateralized by other cryptocurrencies that are held on the Marker platform, rather than by real-world assets held in a bank.
TUSD was the first independently-verified digital asset that matched the US dollar 1:1. TUSD is known because it’s recognised as the first stablecoin to be launched with a core focus on transparency. The supply of TUSD is collateralized by US dollars held in escrow by banks. TUSD tokens can be purchased and redeemed for USD on the TrustToken website.
Frax Protocol (FRAX)
Frax Protocol is a bit different to the other coins in this list. As the first fractional-algorithmic stablecoin, FRAX is backed partially by collateral and partially stabilized algorithmically. FRAX is pegged to the US dollar but can only be bought using other cryptocurrencies on an exchange.
Digital Gold Token (DGLD)
Looking for something a bit more exciting than coins pegged to the US dollar? DGLD may be for you! DGX can be seen as a digital proof of ownership of physical gold which is held in a Swiss vault. DGLD is only issued and linked to LBMA Gold, meaning the quality and source of the product is verifiable.
1. What’s the safest stablecoin?
The backing of a stablecoin determines how much it’s worth and how likely it is to lose value. So, the safest stablecoins are usually coins that are backed by an external asset that’s also safe. Other factors in the safety of a coin include its regulations and its transparency. If you’re concerned about safety, our recommendation is to choose a coin such as USDC, which has proven to be more transparent in the past and is backed by reserves which are heavily audited.
2. What’s the best stable coin to stake?
When it comes to staking stablecoin, the main question should be ‘what’s the best platform to use?’ Different platforms will offer different APYs for different coins, or they may charge varying fees. It’s best to shop around before committing to any given platform to make sure that the platform you choose fits your needs the most. In terms of which stablecoin to stake – this decision should be made depending on where you’ll be taking it.
The world of crypto is a free market and we’re sure there’ll always be new and innovative coins being created and taking the world by storm. However, we hope that our recommendations help you understand the stablecoins that started it all. Once you’ve bought your first stablecoin, you may be looking for a place to stake it. We recommend checking out hi, which offers a great APY on staked stablecoins.