London, UK – Cryptocurrency is an umbrella word that refers to digital currencies developed on the blockchain. Cryptocurrencies have grown in popularity among the general public due to their ability to be exchanged for potentially rich profits. Furthermore, many cryptocurrencies provide tremendous utility features like smart contracts, cross-platform interoperability, and lightning-fast transaction rates.Stablecoins are also cryptocurrencies that are backed by a steady external asset. The most popular stablecoins are linked to fiat currencies such as the US dollar, precious metals such as gold, or, in certain cases, other cryptocurrencies. Stablecoins are also known to have a reserve of the asset they are linked to. For example, a stablecoin pegged to USD, with 5,000,000 coins in circulation, will have the equivalent in cash held at a bank.
This serves as collateral, and when an investor sells stablecoins, the corresponding amount is deducted from the reserve. This also indicates that, unlike other cryptocurrencies, this one is backed by an asset with more than just perceived worth. According to a broker, Josh Bloom at Ashford Capital Investments, these characteristics enable stablecoins to avoid the volatility and unpredictability associated with other cryptocurrencies. Stablecoins are tied to many sorts of collateral, which include:
- Fiat currencies, such as Euro or the Turkish lira
- Gold and silver are precious metals.
- Other digital currencies
- Bonds are debt instruments.
In reality, you’ll see that the value of popular stablecoins is near to or equivalent to USD 1. On the other hand, the collateral exposes some stablecoins to certain dangers. Because collateral is frequently kept at a bank, there is counterparty risk (3rd party risk). There may also be trust difficulties arising from the stablecoin’s claim to have a reserve. In many respects, it’s a hybrid of current blockchain-based cryptocurrencies and traditional banking systems. While this may make it unappealing to many crypto purists, it makes stablecoins an excellent stepping stone for new investors to explore the world of cryptocurrency without assuming unheard-of risks. Stablecoins are appealing to crypto investors for a variety of reasons, including:
- Cryptocurrency stability
- The security of having real-world assets backing you up
- Fees are comparably modest.
- A certain amount of control (fiat-based)
Now that you’ve learned everything about stablecoins. Josh Bloom thinks that it’s time to move on to the list of the largest and most stable cryptocurrencies in May 2022 by market size from the stablecoin universe. Tether (USDT), Digix Gold Token (DGX), Binance USD (BUSD), and TrueUSD (TUSD) are among the greatest stablecoins. Because of their market size, which places them in the top 20 cryptocurrencies, these are regarded as top stablecoins. Let us take a look at them!
- TerraUSD (UST)
The TerraUSD white paper states that the coin’s goal is to be “both price-stable and growth-driven.” Terra, its native coin, supports TerraUSD’s protocol. When the TerraUSD price is less than $1, the Terra platform protocols encourage users to generate incredibly low-risk earnings. By connecting TerraUSD to the normal Terra (LUNA) currency and allowing LUNA to be traded for either UST or dollars (and vice versa), extra UST is minted when its price exceeds a dollar. When the UST pool’s price falls below a dollar, it begins to shrink. This back-and-forth maintains TerraUSD’s price steady in relation to the dollar. TerraUSD is regarded as a low-risk currency by the analytical site InvestorsObserver while being deemed somewhat riskier than Tether and Binance USD.
- Digix Gold Token (DGX)
As it is backed by tangible assets, DGX operates differently from the other stablecoins on our list. It is especially backed by gold bars. This Digix token is equivalent to one gram of gold. As the price of gold changes, so does the value of DGX, making it more volatile and appealing to investors who believe in the power of hard assets. There are around 54,600 DGX coins in circulation, with a market valuation of little more than $2 million.
- TrueUSD (TUSD)
TUSD was the first regulated stablecoin that was completely backed by US dollars. TUSD is governed by a set of rules because TrustToken Inc. – the exchange that produces TrueUSD – intended to protect the cryptocurrency industry’s confidence by weeding out fraudulent and manipulative activities. As a result, TUSD is a rather transparent coin. TUSD has a market capitalization of almost $1.3 billion. Cohen & Co., a cryptocurrency audit and tax consultancy, have completely audited TrueUSD’s reserves. TrustToken does not impose trading fees on its TUSD currencies, which appeals to many investors; nonetheless, TrustToken is not entirely decentralized, and users are beholden to the platform’s rules. In other words, regulatory actions on the TrustToken platform will impact TUSD holders.
- Binance USD (BUSD)
BUSD is another stablecoin backed by the US dollar that has been certified by the New York State Department of Financial Services. Users can buy BUSD at a 1:1 ratio with US dollars. Binance, one of the most prominent and leading cryptocurrency exchanges, and Paxos, a regulated blockchain infrastructure platform, collaborated to create BUSD. Binance USD aims to accelerate the flow of digital assets via the global financial network. BUSD is the Binance exchange’s native stablecoin, allowing users to effortlessly move in and out of crypto transactions rather than needing to wire fiat cash from their online wallet to execute crypto trades.
- Tether (USDT)
Tether is the world’s first stablecoin and the most liquid and transacted stablecoin in the cryptocurrency industry. Tether is the most valuable stablecoin by market value, with about $83 billion, making it the third most valuable cryptocurrency altogether, after Bitcoin (BTC) and Ethereum’s Ether (ETH). Tether was originated in 2014 by Brock Pierce, Craig Sellars, and Reeve Collins under the name Real coin. The purpose of this stablecoin is to maintain its value fixed at one to one with the US dollar. This implies that you may buy and redeem one USDT for $1. Many cryptocurrency exchanges accept USDT as an alternative to fiat currencies, allowing investors to conduct rapid trades. Tether had previously caused criticism since it was unable to produce confirmation that it has sufficient reserves to guarantee USDT. On the other hand, Tether claims that the token is 100 percent backed by reserves that include traditional currency and cash equivalents. In addition, these reserves also include other assets and receivables from Tether or third-party loans.
Stablecoins are often linked to assets such as fiat currency, precious metals, and other cryptocurrencies. They are known to be significantly more stable than traditional cryptocurrencies such as Bitcoin, Ethereum, and others. Stablecoins are not recognized for generating large returns because it is not their intended purpose. Stablecoins are typically utilized for arbitrage possibilities or as cryptocurrency holdings.
Disclaimer: Our content is intended to be used for informational purposes only. It is very important to do your own research before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with, or independently research and verify, any information that you find in this article and wish to rely upon, whether for the purpose of making an investment decision or otherwise.