The crypto market has been volatile for years now. The goal of stablecoins is to create a currency that has a constant value and can be used as a form of exchange for goods and services. Stablecoins will also allow investors to move their holdings from cryptocurrencies to fiat currency without having to incur extra fees or spend time finding solutions.
With cryptocurrencies, it’s challenging to build trust between users. Because of this lack of confidence in a system that generates high volatility and is built around the notions of decentralization and anonymity, transactions are private. This leads to an inability to track a transaction or trace it back through the chain.
Stablecoins (also known as “store of value” coins) are a class of cryptocurrencies whose price is pegged to a real-world asset such as gold or the US dollar. Stablecoins permit users to move value between crypto and fiat with high levels of stability.
Stablecoins are a new kind of digital currency that has the price stability of fiat currencies like USD and EUR but is backed by digital assets instead. They can act as a value store, exchange medium, or account unit.
Classification of Stablecoins
A commodity-backed stablecoin is a blockchain asset anchored to a real-world commodity. The goal of commodity-backed stablecoins is to peg the stable value of their tokens to a designated amount of real-world wealth, thus providing investors with an efficient and cost-effective way to hedge against the instability of crypto assets.
Fiat - Assisted Stablecoins
Fiat-backed stablecoins are a cheaper, faster, and more scalable alternative to common collateralized stablecoins. While many stablecoins rely on expensive collateralization and IOUs, fiat-backed stablecoins use actual fiat currency as collateral, which is held in one or more bank accounts that are audited monthly.
Crypto-backed stablecoins are stable tokens that are pegged to a fiat currency, cryptocurrency, or basket of other assets. The value of these tokens is backed by collateral in a decentralized manner, such as digital/tangible assets and fiat deposits held as reserves by auditors or third-party entities.
Seigniorage Style Stablecoins
Seigniorage Style Stablecoins are tokenized assets that hold their value by tracking the performance of an actual investment. They are created by smart contracts and pegged to an asset on a 1:1 basis. They're designed to behave like traditional fiat currencies in their stability, but they can also be used for cryptocurrency transactions.
Top Stablecoins in 2022
Stablecoins are crypto assets backed by other cryptocurrencies or traditional assets. They are used to lock in crypto prices today or hedge against volatility. Relatively new and untested, they remain controversial but have drawn interest from investors and regulators alike.
Tether is a cryptocurrency asset with a stable value of one U.S. dollar. It was created to allow people to trade on exchanges to avoid the volatility of Bitcoin and other cryptocurrencies without owning them. USDT has been considered the gold standard for stablecoins. Its value is tied to the price of U.S. dollars, so its price isn't subject to volatility from market forces.
Tether is a stablecoin that guarantees the value of its pegged tokens 1:1 against the USD. Its stable price makes it a valuable tool for hedging against potential cryptocurrency volatility. It's a popular choice for merchants who want to accept cryptocurrency payments but wish to avoid dealing with the rollercoaster ride.
USD coin has a stable value. It's the top choice for anyone looking to protect their assets against inflation and global economic uncertainty. USD coin is also easy to use and exchange, so you can convert it easily into other cryptocurrencies and fiat currencies.
USDC is a fully collateralized U.S. dollar stablecoin. Launching on the Ethereum network, USDC is bringing stability to digital payments and financial services while providing new use cases for Ethereum smart contracts.
Binance USD Stablecoin is a deposit and withdrawal medium that does not impact the Binance exchange. You can deposit USDT or USDC in your account and trade like any other cryptocurrency.
Binance USD Stablecoins are issued by Binance and can be used to pay on the Binance platform. They are designed to facilitate payments between crypto and fiat currencies. They are pegged against the U.S. dollar to provide a reliable store of value.
The true USD stablecoin is fully backed by real USD and held in a regulated financial institution in the United States. It is simple to deposit, redeem and withdraw funds. It isn't just a digital version of cash; its value is pegged to the U.S. dollar. It is backed by its reserves—just like the dollar itself.
Origin Dollar is a US-dollar-based stablecoin backed by physical U.S. dollar reserves, held in highly regulated and insured institutions from the U.S. The coin is anchored to U.S. dollars and thus is supported by resources of U.S. dollars. This ensures that its value at any time is equal to the value of the U.S. dollar.
Paxos Standard is a stablecoin issued by Paxos, an FDIC-insured trust company. It is pegged to the U.S. dollar and backed by U.S. dollar deposits held at FDIC-insured financial institutions in New York, Washington D.C., and Montana.
Investing in Stablecoin for Stability
Stablecoins represent a safe, more straightforward option for investors investing in cryptocurrencies. They offer an alternative to other forms of crypto investments. They are often used as a hedge if you're concerned that your portfolio might be negatively affected by further financial turmoil.