The primary idea of cryptocurrency is to replace fiat currencies, however, because most cryptocurrencies are extremely volatile and unpredictable, these coins are not always a good solution for storage and investment. An individual can always come out with a loss as nothing is certain. To solve this issue and imperfection, another set of digital currency – stablecoins, were introduced.
Why Stablecoins are Important?
For a currency to serve as someone’s investment product, it has to store its value and must be trusted to do this for a long period. Digital asset holders want to feel confident about their savings and the value maintained at the price they put in. For this to happen, inflation has to be checked and deflation has to be almost removed from the equation.
In a modern economy, fiat currencies have the same characteristics, and thus, several cryptocurrency projects took this approach. Instead of replacing the traditional fiat, they’ll work with it and allow these cryptocurrencies to be pegged to a fiat currency of choice, e.g. the USD, or any other fairly stable asset. The value of stablecoins equals the price of corresponding Fiat money. The goal is to have an e-wallet that can be like a bank account and not an investment ground.
Top 5 Most Popular Stablecoins
Tether USD (USDT)
This is the largest stable coin as of present. This stable coin was listed in exchange 2015, since then it has become one of the most successful assets on the market being a fast way to transfer value without the need for other cryptocurrencies. Tether was convenient as it was like a substitute for the US dollar. Everyone simply used it not bothering if it was backed up by US dollars.
In mid-2018, the Price if Tether fell from $1 to 85 cents. It failed because Tether suddenly increased its number of Token in circulation. Then Tether started releasing USDT without being backed up by the equivalent in the US dollar.
Pegged to: USD
Market capitalization: $4.06B
Function history: $0.84 – $1.21
True USD (TUSD)
It is one of the most reliable stablecoins as the company creating it has a transparent and open policy. On Binance, its price keeps at $1. 100% of TUSD is backed up by the US dollar on a legally protected escrow account. Holders use it to trade, send and receive payments with ease.
Pegged to; US dollar
Market capitalization; $137.9M
Fluctuation history: $0.934 – $1.36
Although the price of this coin may equal $1, it is however backed by the second most popular cryptocurrency, Ethereum. DAI is stabilized by external market factors. It is even more decentralized than some currency because only users of DAI can create and destroy the token. The token appears when a deposit is paid and disappear after the payment of a debt.
Pegged to: US Dollar (Backed by Ethereum)
Market capitalization: $47M
Fluctuation history: $0.72 – $1.37
USD Coin (USDC)
It was created by top crypto exchange Coinbase and Circle. It’s a stable coin that also has operational transparency. The exchange of this cryptocurrency for fiat is done on the Circle USDC application, and this application emits cryptocurrency. All the functions performed through a banking system can be done on the application.
This stablecoin has also been employed by financial institutions and keeps attracting more international banks. USDC partners with such companies as Bitmain, Blockchain capital among others.
Pegged to: US Dollar
Market capitalization: $462.47M
Fluctuation History: $0.97 – $1.11
Paxos Standard Token (PAX)
This stable coin was created as an alternative to Tether (USDT). PAX can be traded with other assets that are available on the site. The stablecoin can also be used to purchase or sell Bitcoin, Ethereum and other top cryptocurrencies.
One of the main reasons for its publicity is its easy integration of Paxos payments. It also features the absence of transaction fees and a full backing by the US dollar
Pegged to: US Dollar
Market capitalization: $180M
History: $0.97 – $1.10