- @ren_heinrich Nov 8 2021 on Medium
I often get asked about my opinion on stablecoins.
This is to be expected, as they are an important part of the Crypto-sphere and offer valuable functions.
But there are over 100 different stablecoins.
So the problem is, how to figure out which stablecoin is the best and which one should you use?
This is a crucial question. Because as with buying and using other cryptocurrencies, stablecoins come with varying features and risks.
Since it is impossible to cover all of them, I will focus on the most important ones. So here is my comparative analysis of the 5 largest stablecoins by market cap: Tether, USD Coin, Binance USD, Dai, and TerraUSD.
Let’s go!
What Are Stablecoins?
Stablecoins are cryptocurrencies that are pegged to other assets with established market value, such as gold, Bitcoin, FIAT currencies, real estate, etc.
What Are Stablecoins Used For?
Stablecoins are used for the following reasons:
- to provide price stability when prices of cryptocurrencies are volatile
- as fast processing medium between other cryptocurrencies and FIAT currencies
- as payment medium
What Are Stablecoins Backed by?
Stablecoins are backed by different assets. Here are the 4 major types:
- Backed by off-chain reserves of FIAT currencies, such as US Dollar or Euro. Examples of this category are Tether, Binance Coin, and USD Coin.
- Collateralized by on-chain cryptocurrencies such as Bitcoin or Ethereum. An example of such a stablecoin is Dai.
- Backed by physical commodities such as real estate, oil.
- Modified by smart contract algorithms. These stablecoins do not have collateral behind them. When their price is below 1 USD, the algorithm will decrease the supply of the coin. When the price is more than 1 USD, the algorithm will increase the supply to bring the price down. Examples include TerraUSD, Basis Cash (BAC), and Empty Set Dollar (ESD).
Please read the rest of this article here.
