- Stablecoins are backed by a tangible asset like USD to a ratio of 1:1
- Stablecoins are less volatile than regular cryptocurrencies
- Their decentralized nature gives them an advantage over centralized digital currencies
It’s an open secret that the cryptocurrency market saw one of its slowest years in 2018. People who still believe in cryptosphere are considering stablecoins a better alternative to avoid risks and keep their crypto portfolio safe; what with Bitcoin’s value dropping from $20,000 in December 2017 to the current $3,800?
The stablecoin’s underlying asset, a monetary value that’s deposited in a trusted bank, makes people confident they can redeem the coins in exchange and that the issuer has enough reserves for every coin in circulation. In this guide, we will discuss the reason stablecoins are likely to replace fiat currencies and not cryptocurrencies and list the five leading coins.
Cryptocurrencies vs. Stablecoins
Cryptocurrencies are a form of currency or a digital token that enables people to perform transactions minus a bank or an intermediary. The majority of cryptocurrencies don’t have an intrinsic value and are pegged on market dynamics; price speculation has led to significant price volatility.
A Stablecoin is a digital asset that plays the role of stable store of value that’s designed to overcome the effects of price volatility and is usually pegged with US dollars to a ratio of 1:1. A stablecoin, unlike regular cryptocurrency, maintains its worth by being redeemable for something tangible, such as gold or fiat currencies like US dollars.
What is likely to blink first, cryptocurrencies of fiat currencies?
Humans want a practical solution to the problems that face them including in matters to do with monetary systems. This is where stablecoins are poised to replace fiat currencies and not cryptocurrencies. Faced with price volatility among cryptocurrencies, a stable cryptocurrency becomes attractive.
Heightened regulatory interest and attention have made crypto exchanges stop dealing with fiat currency and some have had their funds frozen. Here you can only buy cryptocurrencies with another crypto, still making stablecoins more attractive.
While it’s not yet possible to use stablecoins for day-to-day transactions, interest in them, especially among institutions is rising. Regular cryptocurrencies still offer higher returns thus appealing to risk takers.
The Five Leading Stablecoins
At least 57 different stablecoins exist on the blockchain; below are the most popular ones in the market:
The Tether USD is the first stablecoin that was released in 2015 and is tethered to the US dollar in a 1:1 ratio. It floats with the US dollar’s exchange rate and therefore keeps the cryptos valuation stable.
Before the advent of USDT it wasn’t possible to exchange cryptocurrencies to fiat currencies; the entry of USDT opened the way for exchanging cryptocurrencies to USDT before you could further convert your USDT to fiat currencies through platforms like EPay.
True USD (TUSD)
True USD was issued in March 2018 and is a USD-backed ERC20 standard stablecoin. Users can redeem the exact amount of US dollars for the TUSD they hold. While there have been doubts regarding the viability of this stablecoin, TUSD has in the past published their audit reports showing their total current value to be $50 million in comparison to USDT’s $2 billion.
USD Coin (USDC)
The USDC stablecoin is issued by Circle and is also valued at a ratio of 1:1 to the US dollar and the company claims they are backed by Silvergate Bank, the same bank that backs the USDT. Circle claims in their website that 30 different exchanges including Coinex, Coinplug, Digifinex, Poloniex, OKCoin, KuCoin, and XDAEX offer the USDC for trading.
PAX has received a lot of favorable attention for being the world’s first government-regulated and approved Stablecoin, PAX has been audited by the leading American Audit firm Withum and has its reports published monthly. PAX was approved by New York’s Financial Services Department on September 10, 2018, and continues to gain worldwide recognition.
This stablecoin was launched by Epay, a third-party payment company giving it a lot of clouts and was listed on Nearex, Bithunex, and STEX exchanges at the time it is launched. Valued on a 1:1 ratio to the US dollar, EUSD acts as the accounting symbol for Epay’s Global Remittance Network to accelerate circulation and capital transactions, giving it a practical application.
Apart from acting as intermediate tokens, stablecoins are becoming more popular by the day and claiming a niche in the cryptocurrency market. While the USDT is the leading stablecoin according to the CoinMarketCap, this is an interesting market to watch.
The world of crypto is still volatile where a coin can be worth 10 cents today and five dollars a few months later and that makes a stablecoin with a price that is less volatile an oxymoron. Stablecoin means lower volatility than the regular cryptocurrency.