Author: Slavica Grabovac
Publication date: 10.01.2024
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Stablecoins are digital currencies designed to maintain a fixed value by being linked to another currency, commodity, or financial instrument. In particular, Stable coins strive for price stability either by backing their value with reserve assets or by employing algorithmic formulas intended to regulate the supply.
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Categories of Stablecoins
There are three categories of stablecoins, characterized by the method employed to secure and stabilize their value.
Fiat-Collateralized Stablecoins
Fiat-collateralized stablecoins keep a reserve of regular money, like the U.S. dollar, to make sure the stablecoin stays valuable. Some stablecoins also use collaterals like gold or silver, or goods like oil, as backup. Yet most of them rely on U.S. dollars. The most popular USD-backed stablecoin is Tether (USDT).
Crypto-Collateralized Stablecoins
Digital money-backed stablecoins use other digital currencies as a safety net. To be extra careful, these stablecoins keep more digital currency in reserves than the actual value of the stablecoins in use. This is because the backup digital currency can be unpredictable. As a result, this careful approach is called overcollateralization. Dai (DAI) is a well-known example of this type of stablecoin.
Algorithmic Stablecoins
Algorithmic stablecoins use a computer program to control how much of the stablecoin is available, aiming to keep its value steady. However, they might or might not have backup assets. The most popular algorithmic stablecoin is Basis (BAB).
8 Top Stablecoins in 2023
We have sorted out the top 8 Stablecoins in 2023. But before investing money into any cryptocurrency, it's important to look into it and understand the risks involved.
1. Tether (USDT)
Tether, the currency named after the company, is one of the oldest stablecoins available and is often referred to as the "lifeblood of the crypto ecosystem." Tether offers versions of its stablecoin tied to various fiat currencies beyond the U.S. dollar, such as the euro (EURt), Mexican peso (MXNt), and Chinese yuan (CNHt). Additionally, there's a Tether Gold (XAUt) token backed by physical gold.
2. USD Coin (USDC)
USDC is a regulated stablecoin supported by the US dollar and is gaining popularity for its ability to facilitate fast and secure fund transfers. What's more, USD Coin operates on the Ethereum platform, enabling users to store their USDC in any wallet compatible with Ethereum.
3. Binance USD (BUSD)
Binance USD is a stablecoin supported by the United States. In particular, it was created through a collaboration with Paxos and authorized by the New York State Department of Financial Services (NYDFS). BUSD provides a top-tier level of consumer protection since all the reserves are maintained in cash or cash equivalents, amounting to 100%.
4. Dai (DAI)
Dai (DAI) works on the Ethereum blockchain and tries to stay close to the value of the U.S. dollar using algorithms. Unlike stablecoins tied to a U.S. currency in a bank, Dai is supported by collateral on the MakerDAO platform.
MakerDAO is a decentralized group on the Ethereum network that lets people lend and borrow using cryptocurrencies. If changes happen to the Dai system, users might have to exchange their Dai for Ethereum through the Maker platform.
5. TrueUSD (TUSD)
TUSD is a stablecoin backed by fiat currency, fully supported and providing users with an alternative digital currency tied to US dollars. More specifically, TrueUSD operates on the Ethereum platform, and the collateral supporting its supply is securely held in escrow by banks. Users have the option to redeem and buy tokens for US dollars directly on the TrustToken website.
6. BitUSD (BitUSD)
BitUSD is a digital coin tied to the US dollar, aiming to be steadier than Bitcoin. It runs on the BitShares system and was the first stablecoin ever created.
7. USD Digital (USDD)
USD Digital, or USDD, is a stablecoin introduced by the TRON DAO Reserve and established in 2022 by Justin Sun. USDD maintains stability by adapting to price changes through a flexible monetary policy and an inherent incentive mechanism.
8. Gemini Dollar (GUSD)
GUSD is a controlled ERC-20 token supported by the US dollar and fully secured, meaning it has an equal value of US dollars kept by Gemini. Every month, an independent accounting firm checks to make sure the digital dollars in circulation (GUSD) match the actual dollars Gemini has in reserve.
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