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Tether and USD Coin are by far the two most prevalent stablecoins. Their combined market capitalization is in excess of $120 billion, with Tether reaching over $70 billion and USDC being over $50 billion.
With the recent collapse of TerraUSD (UST), stablecoin safety has been deeply undermined, and people want to depend on a stablecoin without questioning the perpetuation of its peg.
What Is a Stablecoin?
Decentralized finance (DeFi) is a rapidly evolving and highly innovative space supporting a censorship-free, more efficient decentralized system. Tools such as stablecoins help relieve some of the obscurity and support the steep learning curve DeFi can have.
Stablecoins are cryptocurrencies that are designed to hold a value relative to something in traditional finance markets like the U.S. dollar or gold.
Stablecoins fall into one of three categories: fiat-backed, crypto-backed, commodity-backed and algorithmic stablecoins.
Fiat-backed stablecoins
USDC and Tether are the most popular fiat-collateralized stablecoins. They are redeemable 1:1 with the U.S. dollar. Both coins have off-chain collateralization that is usually in the form of cash or short-term bonds. They provide total stability in comparison to other cryptocurrencies’ volatility, and price movements are nominal. Furthermore, because the fiat-backed premise is basic, the tokenomics can be easily understood by many.
Crypto-backed stablecoins
For crypto-backed stablecoins, the most popular coin available is DAI, which employs this approach. DAI’s crypto collateralization is accomplished through MakerDAO’s use of a collateralized debt position (CDP) to guarantee financing as collateral on the chain. Crypto-collateralized stablecoins, as the name suggests, are underpinned by another cryptocurrency as collateral. Rather than depending on a centralized entity, this procedure takes place on-chain and uses smart contracts. Anytime you buy a stablecoin like this, you place your cryptocurrency into a blockchain network’s smart contracts in exchange for tokens of equivalent worth.
Commodity-backed stablecoins
Commodity-backed stablecoins are not equivalent to the U.S. dollar and are instead valued at the particular commodity they are linked to. Commodity-backed stablecoins are essentially blockchain-based representations of commodities and are backed by reserves held by a central entity. These stablecoins receive less press. The two most popular commodity-backed cryptos — PAX Gold and Tether Gold — are equal to the value of gold per ounce per coin.
Algorithmic stablecoins stablecoins
The two most common examples of algorithmic stablecoins are Magic Internet Money (MIM) and TerraUSD (UST). UST lost its peg to the U.S. dollar, and MIM still maintains its peg. MIM is a stablecoin supported by interest-bearing tokens (ibTKNS) for the Abracadabra protocol. Algorithmic stablecoins are a huge point of contention in the crypto market right now because of UST’s fall from grace. A peg can be maintained algorithmically by using rebase algo coins, seignorage algo coins and fractional algo coins.
Why do People use Stablecoins?
Stablecoins are excellent intermediaries from traditional finance to DeFi. Presently, stablecoins in DeFi can be readily understood yet have yield-aggregating potential and other uses.
You can benefit in various ways from owning USDC. Through lending USDC to other crypto traders, you may earn residual income and potentially earn interest. In getting a return on USDC, you accept a risk from potential borrower default.
The ultimate purpose of USDC is to assist companies and people in transferring cash in a faster and more cost-effective manner by removing the need for conventional financial intermediaries and offering a stable cryptocurrency in a less regulated space.
What is Tether?
Tether is a fiat-backed stablecoin that allows users to trade with other cryptocurrencies while avoiding market volatility. Tether is minted on the Ethereum network and is pegged to the U.S. dollar at a 1:1 ratio.
Many detractors have questioned Tether’s assertion that its USD currency assets are adequate to support all the released USDT coins on a one-to-one accord. Many opponents claim Tether has released more USDT coins than its reserve contains in dollars. They further say that the Tether executive team has been jacking up the value of Bitcoin by printing more Tether.
During adversary UST’s nosedive in price, USDT also broke below $1. It maintained its peg, but skepticism remains that it could have faced similar problems if the selloff had been larger.
UDST does seem safe in the grand scheme of things, but it has controversies. It has faced antitrust accusations of creating Tether and selling it to its sister exchange Bitfinex.
Most people in the space assume the backing behind Tether is substantial and safe.
Features of Tether
Tether achieves its stability through its cash reserves. It has the highest market capitalization of all stablecoins and consequently has the highest volume. Tether is not decentralized; it is owned by iFinex.
Tether is interoperable and is traded on most all blockchain networks. Tether does not have a native network and is hugely accessible on most centralized and decentralized exchanges.
How to Buy Tether (USDT)
Voyager is a leading name in the sphere of cryptocurrency investing, giving you access to over 50 tokens and coins. Buy, sell and swap assets using Voyager Crypto’s simple mobile platform available as a free download for iOS and Android users.
When you invest through Voyager, you’ll pay nothing in commissions, which is a major benefit when compared to other cryptocurrency brokers. Voyager is also one of the only brokers we’ve seen that allows users to earn interest on their crypto investments.
Though the broker could do more to improve its customer service, it’s an excellent option for beginner investors and seasoned professionals alike.
Best For
- Cryptocurrency investors looking for a wide selection of supported projects.
- Investors who prefer mobile trading.
- Anyone interested in earning interest on their crypto investments.
- Simple, straightforward and intuitive mobile platform
- Wealth of investment opportunities
- Allows users to earn interest on select crypto investments
- Only available for mobile users — no desktop platform
- Limited routes to contact customer service team
You’d have a tough time finding an exchange that doesn’t offer Tether. Centralized exchanges like Crypto.com and Voyager offer Tether and have simple user interfaces to navigate your purchase.
What is USD Coin?
USD Coin (USDC) is a newer stablecoin that is tied to the U.S. dollar. It was released on Sept. 26, 2018, as a result of a partnership involving Circle and Coinbase Global Inc. (NASDAQ: COIN).
USDC is a USD-backed cryptocurrency and, in essence, is a service that tokenizes U.S. dollars and allows them to be used on public blockchains. Furthermore, USDC coins can be converted to USD. USDC uses cash and short-term U.S. Treasury securities (bonds) to serve as security for the USD Coin. The project retains $1 in collateral for every USDC token under issuance. The ERC-20 smart contract ensures the issuance and exchange of USDC coins.
USDC basically has not deviated substantially from its peg and is extremely transparent with its financials. It has a page dedicated to transparency that shows all of its…
Read More:Tether (USDT) vs. USD Coin (USDC) • Benzinga Crypto
