Volatility is one of the hallmarks of cryptocurrency. Although trading strategies often evolve around the high volatility of crypto, managing your finance while lacking the ability to preserve their value is a tough call. Stablecoins were designed to store value without the need to exchange digital assets for fiat.
As of now, there are over a hundred stablecoins on the market, and people are actively using them in crypto transactions.
In this piece, we will provide an overview of the most popular stablecoins and share insights into how they work.
Stablecoins are cryptocurrencies that have their value pegged to fiat money (typically, USD), another crypto, commodity, or financial instrument. Unlike BTC or many other crypto tokens and coins, stablecoins can be used as a medium of exchange.
Stablecoins vary depending on which method they use to stabilize their value.
Fiat-collateralized stablecoins are backed by reserves of fiat currencies. Typically, they are collateralized by USD, but may also include gold, silver, diamonds, or other commodities. The audits are meant to ensure that the reserves are as large as they should be according to the number of coins issued.
Tether USDT is the most popular fiat-collateralized coin.
Crypto-collateralized stablecoins use other digital assets as their reserve. Due to the volatile nature of crypto, the reserves must be larger than the total supply of stablecoins in order to provide a certain layer of security. For instance, a reserve for issuing stablecoins worth $10 million may count as many as $20 million.
DAI by MakerDao is a good example of a crypto-collateralized stablecoin backed by ETH and other cryptocurrencies.
Algorithmic stablecoins are not backed by reserves, instead their peg is maintained by algorithms. Typically, they are based on the two-coin system where the first coin absorbs market volatility while the second one keeps the peg.
USDD on the Tron blockchain is one of the most prominent algorithmic stablecoins in the current crypto market.
Top 5 Stablecoins
Just like with any other cryptocurrency, not all stablecoins make it in the long run. However, a few well-established ones have made much headway.
One of the oldest stablecoins in the market, USDT is also the third biggest cryptocurrency in terms of market capitalization. It runs on several blockchains, including Ethereum, TRON, EOS, Algorand, Solana, OMG Network, and Bitcoin Cash (SLP). It is backed by a basket of fiat currencies, commercial paper and bonds.
DAI is a USD-pegged Ethereum-based stablecoin designed by MakerDAO. It is also the second-largest decentralized stablecoin by market capitalization.
USD Coin (USDC)
USDC was launched with the help of Coinbase and is backed by USD. It is considered one of the safest stablecoins thanks to the efforts of its creators who focus on compliance and reserve transparency.
Binance USD (BUSD)
BUSD, pegged to USD, is yet another stablecoin designed by the crypto exchange. It was founded by Paxos and Binance, which make sure to conduct regular audits, proving the legitimacy of the coin supply.
One of the youngest stablecoins out there, USDD was introduced in 2022 by Tron. It uses a hybrid model featuring elements of an algorithmic stablecoin and overcollateralized reserve that consists of various crypto assets. TRON DAO Reserve acts as a mechanism to fully manage the USDD reserves.
Apart from saving value, you can also use USDD to make additional income. HitBTC crypto exchange allows users to stake USDD with 11% APY and receive daily payouts for the rewards.
The Bottom Line
Stablecoins were invented to escape the high volatility typical for the majority of crypto assets. Apart from trading, HitBTC allows users to stake one of the stablecoins, namely USDD, with 11% APY and gain additional profit regardless of their experience with crypto.
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This article came directly from HitBTC, at https://hitbtc.com/blog/top-5-stablecoins-and-what-they-are/