Keeping it Even with Stablecoins

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8 min read

Will 2019 be the year of the Stablecoin? It’s anybody’s guess as to what this new year will bring with it, but no one can deny their growing popularity.

Cryptocurrencies Have A Volatility Issue

Anyone that is even a little bit familiar with cryptocurrencies knows just how volatile they can be. Extreme swings are the rule not the exception in this market. Volatility is not necessarily a bad thing, but right now it is impeding the use of crypto as a whole.

Currently, cryptocurrencies act more like speculative investments instead of currency or an asset. It’s difficult to use crypto when its value may drop drastically before you can exchange it for a bagel and coffee or even a cryptokitty. On the other hand, many people are tempted to “hodl” on for dear life hoping for the possibility that their investment will greatly increase in value in the future. Hodling is great, but it doesn’t help with the adoption of decentralized systems. People actually need to put their crypto to use.

What is a Stablecoin?

One potential solution to dealing with the extreme swings cryptocurrencies are prone to are Stablecoins. So what is a stablecoin? The answer is right there in the name; these are cryptocurrencies that have their price stabilized by being pegged to FIAT currency like USD or the EURO. This allows stablecoins to have the versatility of a cryptocurrency, but are still practical for everyday use.

Reserve-Backed Stablecoins

There are two main types of stablecoins. The first type is coins that are reserve-backed. Most of the popular stablecoins fall into this category. Reserved-backed coins operate in very similar way to how the USD was once backed by a gold standard. Issuers of a stablecoin keep one-to-one reserves of the FIAT currency it is pegged to.

Crypto diehards and newbies alike may see some red flags with this model. Almost all reserve-backed stablecoins are centralized, not trustless and lack transparency.

Algorithmically-Backed Stablecoins

Stability is still needed in crypto, so is there a decentralized, trustless and transparent solution? There might be with Algorithmically-backed stablecoins. As the name suggests, software is used to balance supply and demand in a way that prevents appreciation or depreciation of the coin’s value. This usually involves a mechanism to burn coins as demand drops to keep the price in check. These are very new and still need to be proven but are fascinating nonetheless. Some examples of algorithmically backed stablecoins include Ampleforth, Carbon, and Terra.

Which stablecoins see the most use?

Tether is still by far the most used stablecoin, but it comes with its own issues. They claim to be backed 1-for-1 by USD, but they have not had a steady third-party auditor which has led some to doubt if they actually have the money to back each token. Tether also briefly uncoupled from the dollar on October 13, 2018, which caused investors to take a serious look at Tether’s competitors.

Next in order of market cap we have USD Coin, TrueUSD, Paxos Standard Token, and Gemini Dollar. These tokens share many features, most likely in response to criticisms of Tether. They all launched in 2018, are all pegged 1-for-1 to USD, are ERC-20s on the Ethereum blockchain, and all are working with auditors or accounting firms to make reports of tokens issued and dollar reserves available to the public.

Now that you understand what a Stablecoin is and why they are valuable; let’s go over the most popular ones by market cap.

Top Stablecoins by Market Cap

Tether (USDT)

Website: tether.to

Backed By: Tether is pegged 1 for 1 to the United States Dollar

Created by: Tether Limited

Launched: Febuary 2015

Blockchain: Omni Protocol

  • One of the first and the most popular stablecoin (at time of printing)
  • Tether Limited claims they have USD reserves to back all Teathers in circulation but there are rumors that they don’t
  • They have not been transparent about the where/how much USD they are holding
  • They have not maintained a steady third-party auditor
  • Tether briefly unpegged  from the dollar on Oct 13, 2018

 

USD Coin (USDC)

Website: centre.io

Backed By: USD Coin is pegged 1 for 1 to USD

Created By: Centere Consortium

When: September 2018

Blockchain: ERC-20 on the Ethereum Blockchain

  • Centere was founded by Circle and Coinbase
  • Grant Thorton LLP issues monthly reports on Reserve holdings

TrueUSD (TUSD)

Website: trusttoken.com/trueusd/

Backed By: TrueUSD is backed 1 for 1 to USD

Created By: TrustToken

Launched: March 2018

Blockchain: ERC-20 on the Ethereum Blockchain

  • Audits published by Cohen and Co. (Philadelphia based Investment management firm)
  • Specific mission to be transparent
  • Taking some criticism for having similar language in their user policy to Tether’s

 

Paxos Standard Token (PAX)

Website: paxos.com/standard/

Backed By: PAX is backed 1 for 1 to USD

Created By: Paxos

Launched: September 2018

Blockchain: ERC-20 on the Ethereum Blockchain

 

Gemini Dollar (GUSD)

Website: gemini.com/dollar/

Backed By: Gemini Dollar is backed 1 for 1 to USD

Created By: Gemini Trust Company

Launched: October 2018

Blockchain: ERC-20 on the Ethereum Blockchain

  • Founded by the Winklevoss twins
  • Corresponding U.S. dollars are held at State Street Bank and Trust Company
  • U.S. Dollar deposit is examined monthly by BPM, LLP public accounting firm
  • Reports are public and available https://gemini.com/dollar/#reports

 

Dai (DAI)

Website: makerdao.com/en/dai

Backed By: Pegged to USD but backed by ETH

Created By: MakerDao

Launched: December 2017

Blockchain: ERC-20 on the Ethereum Blockchain

  • Collateralized by Ethereum
  • Decentralized and transparent
  • DAI is not purchased, Eth tokens are locked into a smart contract in exchange for DAI
  • Holders of MKR, the volatile token in the ecosystem, vote on how best to stabilize Dai

 

Stasis Eurs – (EURS)

Website: stasis.net/eurs/

Backed By: Pegged 1 for 1 to the Euro

Created By: STASIS

Launched: July 2018

Blockchain: ERC-20 on the Ethereum Blockchain

  • First Stablecoin backed by the Euro
  • Stasis is based out of Malta
  • Stasis has worked with the Maltese government since 2012
  • Also developed Stasis Wallet

 

BitCNY – (BITCNY)

Website: bitshares.org

Backed By: Pegged 1 for 1 to the Chinese Yuan

Created By: BitShares

Launched: September 2014

Blockchain: BitShares Blockchain

  • BitShares is a decentralized exchange that uses smart coils
  • Almost as old as Tether, but has not seen the same amount of adoption
  • BitShares uses prediction markets to keep the smartcoin from inflating
  • BTS is used as collateral by BitShares

 

BitUSD – (BITUSD)

Website: bitshares.org

Backed By: Pegged 1 for 1 to USD

Created By: BitShares

Launched: September 2014

Blockchain: BitShares Blockchain

  • BitShares is a decentralized exchange that uses smart coils
  • Almost as old as Tether, but has not seen the same amount of adoption
  • BitShares uses prediction markets to keep the smartcoin from inflating
  • BTS is used as collateral by BitShares

 

USD Synths (SUSD)

Website: synthetix.io

Backed By: Pegged to USD, Backed by SNX tokens

Created By: Synthetix

Launched: December 2018

Blockchain: ERC-20 on the Ethereum Blockchain

  • Formerly known as Havven (nUSD)
  • Decentralized and trustless
  • Cryptoasset-Backed
  • Issued against a collateral pool of SNX tokens
  • Collateral is on-chain which is transparent and does not need auditing

It’s really exciting to see stablecoins get more popular, and for more options than just Tether to become viable!

Can’t get enough of stablecoins? Be sure to check out our video on MakerDAO’s stablecoin DAI

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