Top 5 Stablecoin Research
It seems like in the span of just a couple years stablecoins are seemingly everywhere. I've never stopped to dig into each one and understand fundamentally how they differ.
The top 5 stablecoins in use are all 1B+ market cap coins.
Looks like the explosion really kicked off in mid 2018 with a number of stablecoins taking a bite into Tether dominance.
USDC emerged quickly as a competitor along with PAX and GUSD, however over time the latter two coins have slipped in terms of maintaining market dominance.
What Is A Stablecoin?
Simply put, a stablecoin is an asset class that is backed by reserve assets in order to maintain price stability.
As a cryptocurrency it maintains the core advantages of security and speed of transaction, with much less exposure to volatility.
- Stablecoins are cryptocurrencies that attempt to peg their market value to some external reference.
- Stablecoins may be pegged to a currency like the U.S. dollar or to a commodity's price such as gold.
- Stablecoins achieve their price stability via collateralization (backing) or through algorithmic mechanisms of buying and selling the reference asset or its derivatives.
5 Stablecoins To Rule Them All
It's a bit crowded in this kingdom! But in this case choice is to our benefit, with many exchanges offering multiple stablecoins to choose from.
I use stablecoins for much of my trading, so I'll use whichever stablecoin has the best pair in terms of volume. For this reason I primarily trade within USDT (Tether) as there's tons f high volume pairs on Binance.
But what if I'm simply storing a portion of my portfolio in stablecoins, for the medium to long term to have cash on hand essentially. Is there reason to use one coin over the other, that's really what I want to know.
USDT
Tether was launched as RealCoin in July 2014 and was rebranded as Tether in November by Tether Ltd., the company that is responsible for maintaining the reserve amounts of fiat currency. It started trading in February 2015. -www.investopedia.com
- Every Tether token is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, “reserves”).
- Recently settled a lawsuit with the NYAG. Tether admitted no wrong doing, but information unrelated to lawsuit revealed again that Tether is not backed 1 to 1 with US dollars.
USDC is issued by regulated financial institutions, backed by fully reserved assets, redeemable on a 1:1 basis for US dollars, and governed by Centre, a membership-based consortium that sets technical, policy and financial standards for stablecoins. -www.circle.com
- It was created in a joint venture by fintech company Circle, and crypto exchange Coinbase.
- Every month, the US dollar reserves for USDC are attested to by top 5 accounting services firm, Grant Thornton LLP. We publish those reports so that you can be confident that USDC is always 100% redeemable for dollars.
- Regulated, USDC’s parent company is a registered Money Service Business in the United States. That means it’s regulated by the government’s Financial Crimes Enforcement Network (FinCEN), which combats money laundering.
- Originally an ERC-20 token, it has since expanded to the Algorand and Solana blockchains.
BUSD is a U.S.-regulated stablecoin, fully backed by U.S. dollars: 1 BUSD = $1.00 USD. BUSD offers faster ways to fund your trades and is acceptable as a medium of exchange, store of value, and method of payment across the global crypto ecosystem. -www.binance.us
- BUSD is a stablecoin developed by Paxos in partnership with Binance. Paxos are also issuer of other stablecoins Paxos Standard (PAX), HUSD and PAX Gold (PAXG).
- BUSD are approved and regulated by the New York State Department of Financial Services and is 100% backed by U.S. dollars held in FDIC-insured U.S. banks.
- uditing firm (Withum) audits BUSD monthly to check if the money held in banks matches the BUSD supply
The world’s first unbiased currency. Dai is a stable, decentralized currency that does not discriminate. Any individual or business can realize the advantages of digital money. -www.makerdao.com
- A price-stable currency that you control. Generate Dai on your terms, instantly.
- Lock your Dai with the other 6.94M earning the Dai Savings Rate set by the Maker community.
- A community of MKR token holders govern the Maker Protocol, the smart contracts that power Dai.
- Over 400 apps and services have integrated Dai, including wallets, DeFi platforms, games and more.
Use Paxos to Build your Stablecoin. As the creators of the industry’s first and most liquid regulated stablecoin, Paxos Standard (PAX), Paxos has unique expertise in the market. Our white-labeled Stablecoin as a Service offering lets partners leverage that expertise to create their own stablecoins quickly and securely. -www.paxos.com
- Paxos serves as the qualified custodian for your stablecoin, ensuring fiat assets are held 1:1 in dedicated omnibus cash accounts at FDIC-insured U.S. banks or in Treasury Bills. These balances are audited every month to validate 1:1 backing.
- Paxos works with New York banking regulators to get formal approval for the issuance and usage of your custom branded stablecoin. Our Trust status and additional licenses enable us to serve customers in all U.S. states and globally.
- We’ve done the heavy lifting so you don’t have to. Our stablecoin platform is API-enabled to make your technical integration simple. With an extensive library of endpoints, it’s easy to select the best options for your customer experience.
Conclusions
From what I can gather the most important elements of modern stablecoin is regulatory approval, regular transparent audits, and 1:1 backing with US dollars.
The more I look into stablecoins, the more I realize they're not all equal. Tether seems sketch, so for that reason I'll limit it's use to short term trading on exchanges.
For me the choice is pretty clear, USDC and DAI take the cake!
USDC is issued by company registered as a Money Service Business in the United States, it's regulated and is subject to regular audits.
DAI is a decentralized and I had no idea it's governed by the Maker Protocol. It's open source, and uses smart contracts on the Ethereum blockchain. Powerful!
I'll put BUSD as a close third but with ties to CZ and Binance, I'll remain somewhat skeptical about it's place in the stablecoin world. However they did go through PAX so it should be regulated for US finance, and reserves audited.
I Would Be Open To Being Paid In Stablecoins
As the use cases for US Dollar-backed stablecoins continues to rise, I have to say I would be open to being paid directly from a company in USDC or DAI. As long as their backing assets are subject to regular audits with a considerable amount of transparency I'm on board..
Ciao for now,
