For both owners and observers, digital currency is primarily an investment asset. This approach has driven trading, caused Goldman Sachs to announce a dedicated trading desk, and (to a significant degree) has driven the speculative price swings of the cryptocurrency market.
However, digital assets are more than just trading instruments with stablecoins representing one of the most important parts of the digital currency ecosystem, offering a new way to transact and retain value around the world or domestically, which is beginning to redefine modern finance.
In simple terms, a stablecoin is a digital currency that retains its value because it’s backed by the value of an underlying asset, which can be anything from fiat currency to oil and gold, or sometimes even cryptocurrency.
For example, Tether (USDT) and USD Coin (USDC) are stablecoins backed by US dollars held in reserve. PAX Gold (PAXG), on the other hand, relies on a gold reserve to maintain a steady price.
In the 21st century, stablecoins are considered to be one of the next major financial breakthroughs of the era; as good as they are for traders or investors stablecoins offer a cheap, fast, and accessible means of transacting value across borders, representing one of the most exciting technologies to emerge in this lifetime.
List of Top Stablecoins
|Name||Description||Year Founded||Number of social followers||Stabilized Asset||Quality of Team||Stabilization Mechanism||Score|
|PAX Standard||Paxos Standard Token is a payment platform complete with the PAX stablecoin backed 1:1 to the U.S. Dollar.||2016||14.5k||U.S. Dollar||The team backing Paxos is a mixed-bag with a wealth of expertise from tech and finance backgrounds.||PAX is backed 1:1 by a reserve of USD.||5|
|True USD||True USD is a one-to-one stable currency that pegs its value to $1 U.S. per token.||2018||1.5k||The young team behind this project boasts some of the most impressive technology names in the field, albeit with little financial experience.||Escrow: Each True USD is backed by $1 U.S. held in an escrow account by third parties. Qualifying institutions can participate in the True USD system, eliminating the need for trust in a central project (albeit replacing that with the need for trust in third-party accounting). With only two minor deviations, the price has remained stable within $0.02.||4.5|
|USD Coin||USDC is a full reserve dollar stablecoin issued by the CENTRE Consortium.||2018||1.5k||U.S. Dollar||The CENTRE and CIRCLE team have founded and helped run numerous high-profile technology companies including Brightcove and Macromedia.||Collateralized: Each USDC token has a corresponding $1 U.S. invested in an owned account. Decentralization will be ensured by allowing numerous different projects to join a network of USDC issuers overseen by the CIRCLE project, each of which maintains its own cash reserves to stabilize the tokens it issues. While the oversight of CIRCLE can insure against value fluctuation, allowing third parties to independently issue the USDC does invite potential concerns of individual error or bad actors.||4.5|
|Dai||Dai is a decentralized stable currency which is pegged to the U.S. Dollar at a 1-to-1 ratio.||2017||88.5k||U.S. Dollar||MakerDao's Founder has almost no experience, having graduated in 2014. It has made up for this lack by hiring other executive-level talent with a deep bench of relevant experience.||Collateral Against Ethereum: To create Dai tokens users have to purchase and stake an equal value (in U.S. Dollars) of Ethereum tokens. As the price of Dai rises, users will be incentivized to create more. As the price falls, users will be incentivized to sell their assets back to the pool.||4.5|
|GUSD||Created by Gemini cryptocurrency exchange, the Gemini USD stablecoin claims to be the first U.S. Dollar-backed stablecoin to receive approval from a U.S. regulator and aims to be the most transparent stablecoin on the market.||2018||149k||U.S. Dollar||Gemini was founded by Tyler and Cameron Winklevoss, two Bitcoin billionaires with a rich background in business.This trickles down to the team who collectively possess high levels of experience.||Collateralized: GUSD is backed 1:1 by real dollars in reserve, with monthly audits.||4.5|
|Digix||Digix takes the idea of a blockchain gold standard literally, promising that each DGX token represents 1 gram of actual, solid gold in a vault in Singapore. The utility of this over purchasing gold outright or an options contract remains uncertain, but the mechanism is sound.||2016||17.2k||Gold||Digix is run by a team with extensive experience in both finance and blockchain development at some of the world's largest firms.||Asset-Backed: A Digix token is minted once the underlying Proof of Provenance protocol confirms that a corresponding ounce of gold is in the vault. The price has fluctuated within approximately 25 percent since inception.||4|
|Binance USD||Developed by Binance, one of the largest cryptocurrency exchanges in the world, BUSD is a fully-regulated stablecoin backed by U.S. dollars, issued via the Paxos Trust Company.||2019||1.8 million||U.S. Dollar||As the world's leading cryptocurrency exchange, Binance in partnership with Paxos have a wealth of industry-leading expertise.||Collateralized: Each BUSD is backed 1:1 by a reserve of dollars held in the Paxos account.||4|
|Huobi USD||Huobi is one the Asia's largest cryptocurrency exchanges, and in partnership with Stable Universal, the firms issued the HUSD stablecoin token as a means to uncouple for pre-existing 3rd party stablecoins, as well as gain exposure in DeFi markets and platforms.||2020||236.8k||U.S Dollar||Singapore-based exchange Huobi has relished a market-leading position for some years.||Collateralized: Every HUSD token is backed by U.S. dollars held in reserves by a regulated trust company.||4|
|Tether||Tether is one of the most well-known, valued, and reliable stablecoins on the market.||2015||58.5k||U.S. Dollar||Bloomberg, among other outlets, has published very serious questions regarding the accounting practices of Tether. The company's founders have a range of professional experience, ranging from fintech to retail.||Collateralized: Each Tether token has a corresponding $1 U.S. invested in an owned account. While serious questions have been raised as to the company's accounting practices in this regard, the token's price has remained stable within $0.05.||4|
|PAX Gold (PAXG)||PAXG is an Ethereum-based digital asset backed by gold. As per the website, each token is backed by one fine troy ounce (t oz) of a gold bar. In this case, if you own PAXG, you also own the gold that backs it.||2019||14.5k||Gold||The team backing Paxos is a mixed-bag with a wealth of expertise from tech and finance backgrounds.||Collateralized: The value of PAXG is pegged to that of gold stored in a vault.||4|
|StableUSD||Stably is a cryptocurrency pegged to the U.S. dollar, with each token set to $1.||2019||N/A||U.S. Dollar||Stably has a team with experience in both technology and finance. While they have little background in blockchain, their c-level leadership has worked with impressive firms in this space.||Collateralized: Stably will hold $1 U.S. in reserves for each token distributed with quarterly audits.||3.5|
|Terra USD||Terra is a blockchain platform that has built numerous fiat-backed stablecoins to power global payments systems. The firm created the decentralized stablecoin, UST, so that it could be available to all developers and blockchains, with DeFi yield earning as a prominent feature. Interchain stablecoin products are at the core of the firm's goals, as is working to solve scalability issues.||2020||28.2k||Cryptocurrency||Terra has a significant presence in the Asia-Pacific region. The team has notable experience in e-commerce, software engineering and business development.||Collateralized: Terra UST is an algorithmic stablecoin. For every UST minted, $1 worth of the reserve asset $LUNA is burned.||3|
The Case for Stablecoins
For a currency to work, it has to reliably store value. Savers need to feel confident that the amount of money they put in the bank on Monday will reasonably reflect their wealth on Friday. Inflation has to stay within safe, stable margins and deflation has to almost never happen.
That is why several digital currency projects have taken a new approach. Instead of replacing traditional money, they’ll work alongside it. “Stable cryptocurrencies” peg themselves to a fiat currency of choice, typically the dollar, and automatically adjust the number of tokens in circulation to keep the price stable.
It’s an approach actually taken by several countries around the world. For example, Cambodia pegs its riel at 4,400 to one U.S. dollar. Their goal is to create an electronic wallet that serves as a bank account, not an investment portfolio.
How Price-Stable Are Stablecoins?
When looking at the prices of stablecoins on digital asset data platforms, you will notice that stablecoins often do not remain “stable” at $1.00. For example, at the time of writing this article, Tether (USDT), USD Coin (USDC), and the Gemini Dollar (GUSD) were trading at $1.01, $1.01, and $1.02, respectively.
The reason for that is that the issuers of dollar-collateralized stablecoins need to manage the supply of their coins through issuing and burning/redeeming to ensure the value of their coins maintains roughly one-to-one with the US dollar.
However, there have also been stablecoins that have lost their peg entirely. Steem Dollars (SBD), a cryptocurrency of the Steemit network, for example, was launched to maintain its value at one dollar. However, the startup behind the Steemit network eventually stopped managing the coin’s money supply and let the digital currency float freely. This caused the coin’s value to surge to $15 during the 2017 rally before it came crashing down to as low as $0.51.
Not all stablecoins are really 100 percent price-stable. Moreover, due to their centralized nature and occasional lack of transparency, some stablecoins are actually riskier than they may seem, even if their values oscillate closely around the $1 mark.
Closer Look at the CENTRE Project’s USDC Token
Some stablecoin projects have taken this idea a step further. They would like to make spending easier on the internet by making one, seamless currency. This includes the CENTRE project, launched by Coinbase and Circle, and its USD Coin (USDC) token. Per the CENTRE project’s whitepaper:
“CENTRE provides solutions for wallets to exchange value using the same or different currencies… a network scheme for fiat token stablecoins that will allow money to flow between wallets the same way information moves between web browsers and servers, email between mail services, text messages between SMS providers. CENTRE answers the question, “I can instantly text someone who uses a different mobile carrier than I do, and I don’t pay money to email someone who uses a different email service than I do, so why can’t I use Alipay to pay someone who uses Square, to pay someone who uses Paytm in India, to pay someone who uses Facebook Messenger — instantly, for free, anywhere in the world?”
Sharing content is free for consumers globally and is interoperable and not locked into specific software programs or devices; so it will be with value, as money becomes another form of internet content.”
Projects like CENTRE will have to get their markets working. Platforms around the world will have to connect to their system for it to work since interoperability is essential to what seamless currency projects promise.
At the same time, building an effective stablecoin is equally essential to the success of a spending cryptocurrency. Any project hoping to build the global Venmo will need a token that users can affordably buy, and one which users can spend and send in confidence that it will be worth tomorrow what it was today. No one will send a token that soon might double in value, and no one will accept one that might tumble by half.
Stablecoins are the way to make that happen.
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