Massive price fluctuations in the market seem normal in the crypto world. Ethereum is down 11.4% as well as Bitcoin, which is down 6.3% at the time of writing. Stablecoins provide a compelling alternative in such a volatile market. Stablecoins are pegged to a traditional asset, usually the US dollar. These crypto coins offer perfect stability in a volatile ecosystem. This article will explore the top stablecoins of 2022.
What are Stablecoins?
Stablecoins are coins whose value is tied to another asset. Stablecoins that peg themselves to the US dollar are usually the most popular. Stablecoins offer the benefits of digital transactions but take away the risk factor of price fluctuations in the crypto market. These crypto coins are a more appealing option as a means of exchange than traditional coins.
Stablecoins offer the benefits of fiat currencies and digital payments, bridging the gap between the two worlds. Stablecoins use several methods to maintain their underlying peg with the underlying asset.
- Fiat-backed Stablecoins: Government-backed currency is used as collateral to maintain reserves of these stablecoins. Stablecoin reserves ensure the peg between the token and currency does not break. Independent parties regularly audit these reserves to verify the operations of the stablecoin.
- Crypto-backed Stablecoins: These stablecoins are backed by other crypto coins. Stablecoin reserves are held in excess as the underlying asset is highly volatile. This excess reserve helps to maintain the peg even if there is volatile movement in the market.
- Algorithmic Stablecoins: Algorithms and smart contracts are used to control the value of these stablecoins. These coins change the supply based on the value of the underlying asset, similar to a central bank. However, no centralized authority controls its supply, unlike a central bank.
Popular stablecoins in 2022
This article has compiled a list of the most popular stablecoins based on their market capitalization.
- Tether (USDT) — $67.96 Billion
- USD Coin (USDC)- $48.97 Billion
- Binance USD (BUSD)- $21.04 Billion
- Dai (DAI)- $6.89 Billion
- TrueUSD (TUSD)- $1.01 Billion
- Pax Dollar (USDP)- $945.37 Million
- USDD (USDD)- $748.48 Million
- Neutrino USD (USDN)- $652.01 Million
- Fei USD (FEI)- $414.18 Million
- Gemini Dollar (GUSD)- $300.43 Million
Stablecoins have a total market capitalization of $153 billion, and the total market capitalization of the entire crypto market is around $1 trillion. Stablecoins account for approximately 15% of the crypto market.
The top three stablecoins
Tether (USDT)
One of the first stablecoins on the crypto market was Tether. Tether was built on the Bitcoin blockchain and was originally launched as Realcoin in 2014. Currently, Tether supports Bitcoin, Ethereum, Algorand, Tron, OMG, and EOS blockchains.
The objective of Tether is to combine the benefits of stable fiat currencies with those of crypto tokens. Investors do not need to worry about sharp price movements in the crypto market as this coin enables seamless transactions.
Transparency is the top priority for Tether. Tether reserves are audited by third parties. They regularly share the breakdown of their reserves to fulfill their commitment to transparency. The majority of their reserves are in cash or cash equivalents like cash, US Treasury bills, commercial paper, and bank deposits. Tether also holds secured loans, corporate bonds, and other digital tokens.
In the past year, the USDT price has seen minor fluctuations of 2.5%, with a high of $1.02 and a low of $0.99.
USD Coin (USDC)
You can call USDC a digital dollar. This stablecoin is secured using short-term US Treasurys and cash. Users can convert any USDC they own into US dollars, enabling them to offer a 1:1 conversion. USDC reserves are kept in many US financial institutions. These reserves are audited monthly to maintain transparency.
USD Coin was launched in 2018 to simplify digital transactions in a world rapidly moving towards being cashless. The goal of USDC is to be accepted by as many services, businesses, and dApps as possible.
The Centre Consortium manages this stablecoin. This consortium includes a crypto exchange called Coinbase and a payment service company called Circle.
Over the past year, USDC prices have fluctuated over 58%, with a high of $2.35 and a low of $0.98. It has maintained its peg close to $1 in the last few months.
Binance USD (BUSD)
Binance USD is a 1:1 backed stablecoin which was launched in 2019. Crypto financial institution Paxos and crypto exchange Binance founded Binance USD. Paxos holds reserves equal to the number of BUSD tokens like other fiat-backed stablecoins.
BUSD bridges the gap between decentralized and traditional finance. BUSD protects users from price changes and inflation using the Defi applications. Users can engage in liquidity pools and yield farming using BUSD. These options allow users to earn passive income while being protected by the volatile crypto market.
The New York State Department of Financial Services operates these stablecoins. BUSD can be minted and burned by Paxos at any time. Additionally, they can also remove or freeze accounts of suspicious users.
Final Thoughts
Compared to volatile crypto tokens, stablecoins offer a compelling alternative. Stablecoins combine the security and stability of fiat currencies with the ease of transacting in crypto. There are many types of stablecoins, but fiat-backed stablecoins have the highest market capitalizations. Stablecoins offer many passive income opportunities and can be a great addition to your portfolio if you want to invest in the crypto market.
