Direct from the desk of Dane Williams.
As their name suggests, stablecoins aim to maintain a stable value.
Designed to mitigate the volatility associated with free floating cryptocurrencies, this usually means being pegged to a fiat currency.
With the global standard unit of account being the almighty US dollar, even as an Aussie that’s the only price peg I worry about.
This stability makes them appealing for various use cases, such as:
In this week’s fresh top 5 blog post, I take a look at the five most prominent stablecoins.
With the LUNA/UST debacle still fresh on everyone’s mind, navigating the stablecoin space can be a little daunting.
But don’t worry, these are the only ones you need to know
Tether (USDT) is the most well-established and widely used stablecoin in existence.
It falls under the category of collateralised stablecoins, where its value is backed by traditional assets held in reserves.
Tether Limited, a company associated with Bitfinex, manages Tether and this is who you are trusting when holding USDT.
The company claims that each USDT token is fully backed by one US dollar’s worth of assets held in reserves…
However, the transparency and auditability of Tether's reserves have been a subject of debate in the cryptocurrency community.
USD Coin (USDC) is the second most popular collateralised stablecoin, aiming to offer a transparent and better regulated alternative to Tether.
USDC is an initiative of the US-based Centre Consortium, a collaboration between Coinbase and Circle.
The Consortium ensures that every USDC token is fully collateralized by an equivalent amount of US dollars held in audited bank accounts.
This commitment to transparency and regulatory compliance has made USDC increasingly favoured by institutional investors and has thus flowed on into the DeFi space.
DAI stands out from the previous two stablecoins due to it being further down the algorithmic stablecoin scale.
It operates on the Ethereum blockchain and is governed by MakerDAO within a relationship I’ve previously looked at in more detail.
To quickly summarise for the sake of this list, DAI's stability is maintained through a system of smart contracts and algorithms.
Instead of relying on direct reserves, DAI achieves its value stability by overcollateralising its issuance with other cryptocurrencies.
It’s cool, but relying so heavily on the collateralised USDC sort of defeats the point of trying to be a decentralised, algorithmic stablecoin.
Binance USD (BUSD) is a collateralised stablecoin issued by Binance, one of the largest cryptocurrency exchanges in the world.
Binance maintains full reserves of US dollars to back each BUSD token in circulation.
In 2023 this of course is a double edged sword.
Sure Binance are too big to fail, but the intense global regulatory and legal pressure that they find themselves under is a risk to all holders.
It’s by far the stablecoin that I’ve used the most, but have drifted away more recently because it’s just not worth the risk.
Hive Backed Dollars (HBD) are the Hive Blockchain’s algorithmic stablecoin.
Supported by the Hive blockchain’s ability to convert 1 HBD into $1 USD worth of HIVE crypto at any time, they provide a novel solution to the (at least soon to be) highly regulated stablecoin space.
As a permissionless, censorship-resistant algorithmic stablecoin that sits completely outside of the regulatory control of governments, HBD has the ability to grant access to financial services to anyone in need.
Its market cap may make HBD a relatively insignificant player right now, but as the need for a permissionless, USD-pegged asset continues to grow, it’s uniquely positioned to capitalise on the demand.
The sleeping giant of the stablecoin world.
As I said at the top of this post, these are the only stablecoins you need to know.
My personal advice would be to avoid all others that you come across like the plague.
There are just too many broken models and straight up stablecoin scams (hi Justin) out there.
The five stablecoins I’ve discussed here - Tether (USDT), USD Coin (USDC), DAI (DAI), Binance USD (BUSD) and Hive Backed Dollars (HBD) - are by far the most trustworthy and by extension, the largest by market cap.
Each represents a different model of achieving stability, allowing you to choose the one that’s right for your personal situation and risk tolerance.
Of course my final verdict would be to choose the only truly permissionless stablecoin on the list, my pick for the best algorithmic stablecoin: HBD.
But for sheer convenience, you can’t go past USDC.
Ultimately, you do you!
Best of probabilities to you.
