Stablecoins

Stablecoins are the third wave of digital assets on the cryptocurrency market. Five years after the dawn of the bitcoin era and the alternative cryptocurrencies (altcoins) that followed, Tether was launched – the world's first stablecoin. Tether is classed as a 'stablecoin' whose value is tied to the value of the fiat currency USD. This stablecoin has recently become one of the most popular digital assets by market capitalisation.

The arrival of Tether lets cryptocurrency enthusiasts invest in an entirely new asset class – digital currencies that are backed by and tied to the value of traditional fiat currencies – and use them for a range of purposes: sending transactions, buying other cryptocurrencies, paying for goods and services, avoiding conversion into fiat currency and so on.

After Tether, many new development teams appeared with fresh ideas for stablecoins that took the concept further, as the popularity of stablecoins grew year on year. So what exactly are stablecoins, and which are some of the best stablecoins on the market?

After the original cryptocurrency, bitcoin, and the class of alternative coins known as altcoins that followed it, blockchain technology introduced a new category of digital asset: the stablecoin. The name 'stablecoin' suggests that these digital assets aim to provide stability in the market. The cryptocurrency market is marked by high volatility and frequent sharp price swings. Stablecoins are backed by reserve assets and so serve as a stable alternative in the fast-moving market for digital assets.

Stablecoins are designed to secure their market value using reserve assets. This stability of value is achieved by pegging stablecoins to a fiat currency, such as the US dollar or the euro, to bonds, or to commodities such as gold. Alternatively, the low volatility and high stability of stablecoins is achieved with an algorithmic mechanism that adjusts the buying and selling of derivatives or reference assets.

Thanks to the development of such a mechanism and the backing of digital assets with fiat currencies and fixed values, stablecoins are resilient to sharp and dramatic price swings. This means the price of stablecoins stays stable and does not change suddenly, which is one of the main things that draw investors and users to these digital assets.

Why are they popular? Stablecoins are gaining popularity because they combine the advantages of fiat currencies and cryptocurrencies. Using blockchain technology, they can offer fast transaction processing, security and privacy, all at low fees. Unlike other cryptocurrencies, stablecoins have low volatility and show high stability of value, much like fiat currencies.

The different types of stablecoin

There are two basic types of stablecoin on the market: collateralised and hybrid. Collateralised ones can be split into four subgroups: fiat-backed, crypto-backed, asset-backed and non-collateralised.

Fiat-backed stablecoins

Fiat-backed stablecoins are digital assets tied to the value of a fiat currency. The first stablecoin ever issued was USDT, backed by the US dollar. The value of this stablecoin is secured by reserves matching its market capitalisation. Although many fiat-backed stablecoins are pegged to a single fiat currency, they could in theory be backed by a group of national currencies.

Crypto-backed stablecoins

Crypto-backed stablecoins are backed by other cryptocurrencies, as the name suggests. They use special protocols that keep their price stable so it does not move with the value of the cryptocurrency used to collateralise the token. DAI is one of the best and most successful examples. Although these types of stablecoin are not as popular as the fiat-backed ones, projects such as DAI are working to raise awareness of the concept and give it more room in the world of cryptocurrencies.

Asset-backed stablecoins

Asset-backed stablecoins are linked to the value of backing assets that need not be fiat or crypto. They are not primarily meant for exchanging value — instead they act as an investment instrument that gives exposure to underlying assets such as oil or gold without the investor having to own those assets physically.

Non-collateralised stablecoins

Non-collateralised stablecoins, also called algorithmic, have no underlying asset. They resemble fiat currencies in that their value rises and falls with supply and demand. The main difference is how they are issued: with fiat currencies the supply is set by a central bank, whereas with algorithmic stablecoins it is governed by an algorithm and can be influenced by community voting through a decentralised mechanism.

The best stablecoins on the market

The best and largest stablecoins on the market by market capitalisation include these projects:

1. USDT (Tether)

USDT, issued by Tether Limited, is one of the most popular stablecoins and also the first stablecoin ever created. Tether is pegged to the US dollar and its value is secured at a 1:1 ratio.

Besides the US dollar, USDT also supports other national currencies, such as the euro or the Chinese yuan. The reserves that back USDT include cash and cash equivalents and ensure that the value of USDT matches the amount in circulation, or exceeds it.

The USDT stablecoin is available on several blockchains — historically on the Omni protocol, and today mainly as an ERC-20 standard token on the Ethereum network and on the Tron network.

2. USD Coin (USDC)

USD Coin is the digital equivalent of the US dollar, firmly tied to its value. The issuer (today Circle) sets the policies as well as the technical and financial standards and, within blockchain technology, offers transparency about the value of USDC.

USDC lets users make fast, reliable, transparent and cost-effective payments. It is issued by regulated financial institutions and its reserves are fully backed by cash and short-term government bonds, so it can be exchanged for US dollars at a 1:1 ratio.

With USDC, users can enjoy several benefits — for example earning interest on lending platforms, using its stable value to reduce volatility risk, storing value in it and making transactions quickly.

3. TrueUSD (TUSD)

TrueUSD (TUSD) is a stable currency, fully secured and backed by the US dollar at a 1:1 ratio. This means every TUSD can be exchanged for US dollars at any time, and the value of 1 TUSD = 1 USD. TrueUSD provides services on five continents and is tradeable on more than 160 markets and 70 exchanges.

Because TUSD runs on the Ethereum blockchain as an ERC-20 standard token, it allows faster and cheaper transactions than traditional financial systems. Balances and movements of TUSD can be checked easily through the public blockchain explorer Etherscan.

Besides TrueUSD, the company behind the project also issues other currencies such as TrueCAD, TrueHKD, TrueGBP and TrueAUD. These represent individual national currencies and enable fast, secure payments.

4. Maker (DAI)

DAI was created by the Maker project (now Sky). It is one of the best examples of a crypto-backed stablecoin. DAI is pegged to the US dollar and its value corresponds to one USD. The system uses collateral managed by smart contracts on the Ethereum blockchain — each DAI is over-collateralised, so the value of the locked collateral exceeds the value of the DAI issued.

Holders can earn by locking up DAI at a savings rate set by the community. The network is governed by holders of the Maker token (MKR), and DAI is integrated into hundreds of services and applications, including wallets and decentralised finance platforms (DeFi). It is a consumer stablecoin that anyone can use anywhere.

5. Pax Dollar (USDP)

Pax Dollar is one of the few stablecoins with pronounced legal and regulatory credentials. It was approved by and is regulated by the New York State Department of Financial Services (NYDFS). Each USDP token corresponds to the value of one USD.

This token is issued by Paxos Trust Company, which backs it with its reserves. USDP can be used for instant trading, peer-to-peer transactions, payments for products and services, and for safely storing value. It is available on dozens of exchanges and wallets, and users have access to regular audit reports on the reserves.

6. Gemini Dollar (GUSD)

The Gemini Dollar (GUSD) is another regulated stablecoin. It is issued by Gemini, one of the larger US cryptocurrency exchanges. GUSD is fully backed by the US dollar at a 1:1 ratio.

This lets users make fast transactions and store the value of their assets without the risk of the high volatility that is common on the cryptocurrency market. The Gemini Dollar runs on the Ethereum blockchain as an ERC-20 standard token and was one of the first stablecoins to gain approval from the New York State Department of Financial Services.

7. STASIS EURO (EURS)

The value of EURS is kept stable thanks to liquidity support from STASIS's partners. Each EURS token is backed by the euro at a 1:1 ratio, and it is one of the largest euro-pegged stablecoins.

The money behind EURS is held in reserve accounts, and its stability is ensured by liquidity providers, custodians, payment platforms and exchanges, which makes it easy to redeem. EURS runs on the Ethereum blockchain as an EIP-20 standard token and was the first stablecoin on Ethereum to introduce so-called delegated payments, which let you pay transaction fees directly in EURS instead of the standard cryptocurrency fee (GAS).

Are stablecoins safe?

Although a stablecoin aims to hold a steady value, it is not a risk-free investment. A stablecoin can lose its peg to the dollar (a so-called depeg) — in 2022 the algorithmic TerraUSD collapsed completely, and even the fully backed USDC briefly fell below the dollar in 2023. The quality and transparency of the reserves and the regulation of the issuer also play a part. This page serves as an informational overview of the market, not as investment advice.