Ethereum and Bitcoin, which introduced crypto assets, caused profound levels of price volatility. Unlike fiat currencies, cryptocurrencies do not benefit from price stability mechanisms. Cryptocurrencies are based on very simplistic models, including fixed coin supply and predetermined block rewards.
There is often little scope for changing the total coin supply since it is predetermined or already mined. Cryptocurrencies are unable to adhere to an adequate monetary policy, as is evident from their very nature. The crypto community is in need of a list of stablecoins to address the need for stability in the value of transfers.
Especially banks and private firms like Facebook are gaining a lot of traction in the stablecoin market lately. Stablecoins are essentially an alternative to the cryptocurrency landscape that reduces price volatility. An overview of the stablecoins that are expected to make news in 2021 is provided in the following discussion.
Stablecoins: What You Need to Know
Before going over the different popular stablecoins, it is important to know
- what they are and
- why they are important.
Crypto investors amassed enormous wealth overnight and lost a significant amount of their shares within a few weeks. It was at this point that people realized cryptocurrency alternatives are extremely volatile.
Moreover, cryptocurrencies don’t provide a reliable method of exchanging goods and services because of their volatility. The most successful stablecoins that have emerged in the crypto world have thus successfully addressed this issue. Stablecoins, compared to general cryptocurrency alternatives, are characterized by a high level of value stability.
Stablecoins Are Becoming More Popular
With the recent phenomenon known as the ‘stablecoin invasion,’ demand for stablecoins is continuing to grow. In the current market, there are almost 200 stablecoins distributed globally, some of which are already released and some of which are in development. Gemini Dollar (GUSD) and Paxos Standard (PAX), two stablecoins backed by the US dollar, have also been approved and regulated by the New York State Department of Financial Services.
The overall value of stablecoin assets has crossed over $20 billion, according to a report from CB Insights. Many financial institutions looking to enter the crypto space, including JP Morgan, are interested in stablecoins.
Stablecoin Types And Categories
It is possible to categorize stablecoins based on their supporting assets, primarily. The different types of stablecoins can be used to understand the stability of stablecoin prices. Below are some of the common stablecoins you are likely to encounter.
Stablecoin Backed By Commodities
The stability of stablecoins that are pegged to commodities is usually provided by hard assets. Gold or real estate are examples of hard assets. As collateral for stablecoins, gold is most commonly used, however many stablecoins use a diversified combination of precious metals.
Crypto-backed stablecoins, on the other hand, paint a very different picture than those pegged to crypto assets. There is a complete list of stablecoins available today, including crypto-backed stablecoins. It is possible for stablecoins to maintain overcollateralized positions under certain circumstances.
Fiat Currency-Backed Stablecoins
Besides fiat-backed cryptocurrencies, stablecoins can also be accessed via fiat. Many stablecoins are included in the 2021 stablecoin list, and they are very popular. Stablecoins are held as collateral by fiat currencies like the US Dollar, Euro, and Chinese Yuan, as suggested by their name.
The Seigniorage of Stablecoins
In contrast to a currency or asset, seigniorage is generally managed by an algorithm or process. The Seigniorage-backed stablecoins can be supported by smart contracts on decentralized platforms. In 2021, the Blockchain Ecosystem will offer more opportunities. Blockchain technology will be used by several companies.
Stablecoins To Watch In 2022
Companies and individuals around the world are taking notice of stablecoins. In order to fully comprehend stablecoins, it is not sufficient to explain their definitions, features, and types. In 2022, it is necessary to identify stablecoins that will be able to guarantee exceptional results.
You might encounter stablecoins in 2022 news stories about crypto. In this article, we have compiled a list of some of the top stablecoins.
The USDT or Tether is undoubtedly an important addition to the stablecoin list. This is the most popular and largest stablecoin currently. Tether’s market capitalization is estimated to be over $32 billion by cryptocurrency exchange CoinGecko.
Because of its three-pronged strategy, Tether is also one of the best stablecoins currently available. By following the strategy, it has successfully launched three stablecoins.
The most prominent stablecoin is USTether, which is pegged 1:1 to the US dollar. A second stablecoin pegged to the euro was later introduced by Tether. Another stablecoin created by Tether is called YenTether, which is pegged against the Japanese Yen.
On the other hand, Tether is also not without flaws. Besides lack of transparency, Tether has also been criticized for discrepancies in its collateralized reserves. The Tether project originally claimed that it would provide 100% support for USDT through its cash reserves, where it would hold a dollar for every USDT issued.
DAI is a stablecoin cryptocurrency offered by MakerDAO, a decentralized independent organization. It is a completely decentralized stablecoin, which ensures censorship-proofing against centralized administrations. There is no financial backing for it, including the US dollar.
Rather, MakerDAO’s DAI is backed by cryptocurrency collateral. DAI is created as a result of the collateralized loans on MakerDAO. Cryptocurrencies can be deposited on the MakerDAO Platform to borrow money. DAI also has the advantage of being a ‘multi-collateral’ stablecoin, making it one of the best stablecoins. You can ensure that DAI can be contributed to by different crypto assets if you use ‘multi-collateral’.
Through the use of smart contracts, DAI can manage the concerns of stablecoin price. In addition to its unique features, the DAI token is an ERC-20 token based on Ethereum. Decentralized applications can thus benefit from DAI’s ability to facilitate desired levels of interoperability.
Among stablecoins in 2022, USDC, also known as USD Coin, is prominently mentioned. USD Coin stands out from other stable coins in part because it is Coinbase’s official stablecoin. The token’s dollar value is completely backed by the US dollar, and it has been verified by the Circle company that founded it.
Regulatory precedents can be better accommodated with USD Coin. In addition to obtaining the necessary licenses, the company has also made sure it complies with several jurisdictions. A further advantage of USDC is that it is based on Ethereum and an ERC-20 token, which is suitable for Defi applications.
It has taken USD Coin a long time to reach the top of the stablecoin list since its founding in 2017. Despite that, its market capitalization is at least comparable to that of Tether at $7.5 billion. Therefore, it can provide reliable transparency regarding information regarding its cash reserves.
True USD, which was added recently to the stablecoin list, is another promising addition. It offers crypto investors a transparent and efficient alternative to the USD fiat currency. In addition to Google, UC Berkeley, Palantir, and Stanford, members of the True USD team are involved in the effort.
With inspiration from Tether’s protocol, True USD has evolved into a more stable cryptocurrency. TRUSD can be used to trade as it keeps a reserve of dollars. Users must comply with the KYC laws of the company in order to redeem TUSD pegged against USD.
Nevertheless, there is a specific disadvantage of True USD, which is that it has a hint of a middleman. Knowing the customer’s (KYC) data is necessary for True USD users. Additionally, users can be confident that TUSD will be supplied without any harm being done. As for True USD, it relies on the Trust protocol, which has solid regulatory support and reliable fiduciary guidance.
Digix Gold (DGX)
Digix Gold, or DGX, is the perfect stablecoin with the backing of gold that is based on commodities. This is an ERC-20 token whose value is pegged to gold. Each DGX is pegged to an ounce of gold in Digix Distributed Autonomous Organization.
In addition to keeping the identification of the gold bars against which the DGX token is pegged, it is also responsible for creating separate tokens for creating the DGX token. The Proof of Asset token is administered by smart contracts involved in the creation of the DGX token. Gold bars could be purchased according to the stated value of DGX. There are currently 200 million DGX tokens in circulation, and the stablecoin intends to expand its vault beyond Singapore.
Some of the biggest cryptocurrency markets, including China, Japan, and the United States, cannot use DGX due to legal issues. DGX’s capabilities as a gold-pegged stablecoin limit its potential as one of the top stablecoins in the fintech sector.
As a representative of the next generation of stablecoins in 2020, Havven’s Nomin and eUSD are also ERC-20 tokens. Stablecoins use Havven’s escrow technology in conjunction with Ethereum’s mainnet and Havven tokens. As a result of eUSD fees, ETH is generated that goes to users who have escrowed the ETH.
Havven’s Nomin’s most important contributing factor in making it an attractive addition to the entire stablecoin list is its foundation. eUSD’s team includes many leaders with extensive experience in blockchain and fintech, which further proves its credibility. This makes the token the ideal candidate for serving as the Ethereum stable token. In addition to being a stabilizing currency, the eUSD could also serve as a proxy for other currencies on decentralized exchanges. On the other hand, it can also serve as a highly stable form of escrow in online work communities.
In spite of its many benefits, eUSD has certain drawbacks, including criticism of its complicated design. There can be skepticism on the part of users regarding transparency.
In addition to the list of stablecoins in 2022, you should also remain focused on Paxos Standard. There is no doubt that Paxos, with a market capitalization of over $1 billion, is far behind Tether in terms of market capitalization. In addition to its market capitalization, Paxos offers much more. Paxos presents reliable prospects in terms of regulations as it has been approved by the New York State Department of Financial Services.
Paxos Standard’s reputation as a reliable stablecoin has also made PayPal’s partnership with them possible. Additionally, the approval served as a promising boost for Paxos’ aspirations to enter the crypto space. In order to gain dominance over other stablecoins, Paxos can utilize its partnership with PayPal to its advantage. With Paxos, Paxos may find it easier to achieve improved adoption with the global payment systems giant. Therefore, Paxos deserves a spot on the list of stablecoins that will be popular in 2022.
In order to counter the rivalry between Coinbase and the top crypto exchange platform, the latter developed its own stablecoin. Binance USD is pegged 1:1 to the US dollar at the moment. Most importantly, Binance USD can be used in almost any case where Ethereum’s ERC-20 protocol is compatible. Therefore, Binance USD offers something more than consistency as a stablecoin price.
Binance USD’s design makes it useful for varied types of commerce, while also ensuring better speed when executing transactions. Binance USD is also recognized as credible due to its approval by the New York State Department of Financial Services. Interestingly, Binance USD provides some of the same advantages that can be found with Paxos Standard as well. Unlike other stablecoins, Binance USD does not require additional fees for creating or withdrawing funds. Most importantly, Binance USD is the preferred stablecoin for people looking to use Binance exchange to transfer crypto-assets.
The Bottom Line
Lastly, it’s quite obvious that it would be very difficult to include the entire list of stablecoins here. Readers can access a detailed analysis of the fundamentals of stablecoin and the reasons behind its popularity. Currently, the stablecoin ecosystem contains almost 200 stablecoins, making it difficult to compile a comprehensive list. On the other hand, the notable stablecoins listed here can provide valuable insights into the characteristics found in the majority of stablecoins.
Stablecoins have the best aspect evident in their name, i.e., stability. They can play a crucial role in driving cryptocurrency adoption and are already doing so. The use of stablecoins might be able to alleviate apprehensions associated with cryptocurrency volatility. Learn more about stablecoins as well as other noteworthy mentions in the crypto space right now to identify new avenues to explore.