What Are The Best Stablecoin Tokens?

What Is The Best Stablecoin?

To start things off, first, let’s jump straight into the stablecoin definition and why we need it and then we will focus solely on showcasing the best stablecoin tokens out there on the Internet. We already know that cryptocurrencies are digital assets with constantly changing volatility, and there is no guarantee for them to stay at a fixed value. Now, what if we have access to stable cryptocurrencies with a steady price like traditional fiat currencies but smart ones that can also be sent over the Internet? Is there a novel solution to overcome crypto volatility? YES, the stablecoins! As the name suggests, a stablecoin enjoys stable prices. Problem solved!

An Introduction To The Best Stablecoin

A stablecoin makes a bridge between fiat currency like the US dollar and other cryptocurrencies. It's a stable-price digital asset whose value is fixed to another asset, often currencies, such as the U.S. dollar or the Euro. Simply put, having a stablecoin means you own a copy of your FIAT money but with a key difference! You already have it on the BLOCKCHAIN!

They’re a “safe haven in the wild world of crypto,” said Manuel Rensink, Director of Strategy and Innovation at crypto company Securrency. For example, the USD coin has barely strayed from its $1 value for its entire existence. Meanwhile, at the start of 2019, Bitcoin floated close to $4,000, but in 2021 it was occasionally over $60,000.

What Are The Best Stablecoin Tokens?

It’s not a secret that with thousands of stablecoins out there, it may be confusing which one is the best stablecoin for you. However, before getting into the best stablecoin tokens, let’s review different kinds of stablecoin in the following; then, we will go through the best stablecoin tokens.

How Does The Best Stablecoin Work?

Stablecoins are “pegged” to several official currencies or other assets, typically the USD and backed by multiple sources, like FIAT money or other cryptocurrencies. They can be classified into several categories based on the type of assets they’re pegged to. Let’s dive into the four primary types of stablecoins.

FIAT-Collateralised Stablecoins

• They have the backing of a fiat currency, such as the Euro, GBP, or the US Dollar, with a 1:1 ratio backing. 1:1 means one stablecoin equals one currency unit, such as a Dollar or one Euro. The companies behind these coins are required to hold a US dollar equivalent for each coin in circulation (or Euro if the stablecoin is pegged to it). Below are some examples of FIAT Collateralised.
• Tether — USDT is the most popular stablecoin
•  TUSD Gemini
•  GUSD Paxos
•  PAX Circle
•  USDC

Commodity Backed Stablecoins

Commodity stablecoins are collateralised by physical assets like gold, precious metals, or oil. These stablecoins represent the value of their underlying asset. For instance, PAX Gold ( PAXG) represents the value of each ounce of gold.

Crypto-Collateralised Stablecoins

FIAT and Commodity backed stablecoins need an issuer to provide collateral for each token. But in the world of cryptocurrencies, we seek to go decentralised as much as possible! That’s why crypto-backed stablecoins came to play! As their name suggests, these kinds of stablecoins are backed by cryptocurrencies! But you might be wondering, what about the volatility of cryptocurrencies? When you purchase these stablecoins, you lock your cryptocurrencies in a smart contract, giving you tokens of equal representative value. For instance, users lock ETH or other accepted cryptocurrencies and then mint DAI, a crypto-backed stablecoin.

Algorithmic Stablecoins

Non-collateralized or algorithmic stablecoins do not have any assets or collateral to back them. These stablecoins use smart contracts or algorithms to manage the supply of tokens and circulations to control the price. The algorithm sets the rules for balancing the supply and demand of the stablecoin. In other words, it uses an algorithm that can mint more coins when its price rises and then buy them off and burn them when the price falls. They support two coins’ structure in which one coin is used to "absorb" market volatility, and the other strives to keep the peg. Algorithmic stablecoins exist in different types, including rebasing, seigniorage and fractional.

Rebasing Algorithmic Stablecoins

In Rebasing stablecoins, the protocol mints (adds) or burns (removes) supply from circulation in proportion to the coin's price deviation from the $1 peg. If the coin price is > $1, the protocol mints coins. If the coin price < $1, the protocol burns coins. (Alter the supply). One of the first rebasing algorithmic stablecoins is AMPL. If the AMPL price rises by $1, the protocol increases the circulating supply and distributes the newly minted tokens to existing holders. However, the AMPL token supply decreases when the AMPL price drops below $1.

Seigniorage Algorithmic Stablecoin

These types of algorithmic stablecoins utilise the multi-coins system where one coin's price is designed to be stable, and at least one other coin is intended to facilitate that stability. TerraUSD (UST) is a seigniorage stablecoin that aims to maintain its peg to the U.S. dollar through the work of arbitrageurs. In this case, Terra’s native coin LUNA is the volatile cryptocurrency used to balance the price of UST stablecoin while also functioning as a governance token for the network. The arbitrageurs help keep UST price pegged to the U.S. dollar by selling LUNA for UST when the price of UST is below $1 and buying LUNA when UST is worth more than $1. 

Fractional Algorithmic Stablecoins

Fractional algorithmic stablecoins are a combination of the previous two models, i.e., rebasing and seigniorage. They are backed by collateral (e.g., fiat currency) and have an algorithm that modifies the stablecoin supply as needed.

What Are The Benefits of Best Stablecoin Tokens?

Stablecoins have several advantages over fiat currencies and other cryptocurrencies. Let's dive into these benefits.

Best Stablecoin Tokens Minimalise Volatility And Fees!

Generally, the cryptocurrency value depends on the economy's strength, thereby presenting formidable risks for everyone’s finances. As we are all aware, the crypto industry could be dreadfully volatile. In hard situations like the bear market in early 2022, we need some place to hold the tokens to prevent them from losing value. Exiting the crypto space costs a lot and could be time-consuming, and that’s why stablecoin, with its steady price, can be our best choice to keep our assets in the crypto space and avoid losing value. Also, the best stablecoin tokens enable faster and cheaper transactions.

Best Stablecoin Tokens Are Borderless!

At the start of 2022, the inflation rate in Venezuela rose by more than %1100, and as a result, the value of its official currency, the Bolivar, dramatically dropped. The local bank didn't allow people to open accounts for any cryptocurrency. People couldn't flee the country with their fiat money or send it internationally through their banks and could not physically carry their money with them. In this situation, you can make use of a crypto exchange and buy stablecoins like USDT to avoid losing your money's purchasing power!

Best Stablecoin Tokens Are Programmable (Smart Contracts)

Stablecoins have been issued on various blockchain networks that support smart contracts and are widely used all over the DeFi space and on exchanges. They can be used for holding, trading, borrowing, and lending abroad.

What Are The Drawbacks of Best Stablecoin Tokens?

Despite the benefits of the best stablecoin tokens, they involve some drawbacks. Let's learn about them in the following sections.

Centralisation With The Best Stablecoin Tokens

Even though blockchain technology and cryptocurrencies have emerged for decentralisation, stablecoins usually act opposite and require trust from an entity. However, other stable decentralised cryptocurrencies, such as Dai, achieve decentralisation without a central authority. They use smart contracts on the Ethereum blockchain to manage the collateral and maintain order.

Less Return on Investment With The Best Stablecoin Tokens

There are lower yields on stablecoins in DeFi applications than on regular cryptos.

Transparency And Best Stablecoin Tokens

If a stablecoin is not sufficiently backed by hard assets, especially cash, it could lose the peg against its target currency. That’s effectively what happened to the algorithmic stablecoin TerraUSD in May 2022.

What Are The Best Stablecoin Tokens By Market Capitalisation? 

• Tether (USDT)
• USD Coin (USDC)
• Dai (DAI)
• Binance USD (BUSD)
• Pax Dollar (USDP)
• TrueUSD (TUSD)
• Digix Gold Token (DGX)

How To Get The Best Stablecoin Tokens?

There are several ways to own one of the best stablecoin tokens, including swapping, buying, earning, and borrowing. Learn about them in the following.

• Swap The Best Stablecoin!

You can pick up most of the stablecoins on decentralised exchanges. So you can swap any tokens you might have for a stablecoin you want.

• Buy The Best Stablecoin!

A lot of exchanges and wallets let you buy stablecoins directly.

• Earn The Best Stablecoin!

You can earn stablecoins by working on projects within the Ethereum ecosystem.

• Borrow The Best Stablecoin!

You can borrow some stablecoins using crypto as collateral, which you must pay back.

Best Stablecoin Vs Cryptocurrency 

The main difference between the best stablecoin tokens and other cryptocurrencies is that a stablecoin is a cryptocurrency with a non-volatile price, but a cryptocurrency like Bitcoin sees huge volatility in price.

• Stablecoins can be used for real-life transactions, while cryptocurrencies like Bitcoin can be used for Exchange, gambling, trading, and payments.
• Best stablecoin tokens are backed by real-world assets, but other cryptocurrencies, especially Bitcoin or Ethereum, don't have any assets backing them. 
• Cryptocurrencies came to play with the goal of decentralisation, i.e., being independent of central authorities while the best stablecoin tokens are less or more backed by a third party.

Conclusion

Putting it all together, we learn that the best stablecoin tokens out there are meant to function the way their name suggests with stability and have become some of the most popular ways to store and trade value in the crypto ecosystem. They are under the spotlight because their rapid growth aims to provide refuge to those who want to exit constant volatility while staying in the crypto market. If you're going to dive deeper into the crypto space, you should check Cryptologi.st, where we strive to expand your crypto knowledge with the help of our unique features like a free crypto screener, a watchlist, and hundreds of educational articles and related news. Follow Cryptologi.st and stay on top of your crypto game!