Largest cryptocurrency stablecoins – brief overview
Investing in crypto? Where do you put your cryptocurrency rewards or gains? Swap to another coin, keep and HODL in that same coin, sell and keep in fiat?
Like many of you, I swap my rewards/gains into a stablecoin. Yeah, I got hit hard with UST. I learned that I have to find better stable coins, but more importantly, to diversify into different stablecoins. So, here is my list:
Originally, I had been swapping into UST and later earning up to 20% in @anchor_protocol. Yes, I’m one of those DeGens.
So, why did I put my gains (rewards) into a stablecoin? Easy, I wanted to be able to swap and buy at a second’s notice whenever a coin that I liked came down in price.
But now, I have started to diversity my cryptocurrency gains into other stablecoins. One of them is USDC.
USDC is a centralized asset-backed stablecoin operated and issued by Centre, a consortium founded by Circle and Coinbase.
What are cryptocurrency stablecoins?
Stablecoins are cryptocurrencies the value of which is tied (pegged), to that of another currency, commodity or financial instrument. Usually to the U.S. dollar.
Can you make money through stablecoins?
Centralized stablecoins, like USDT (Tether) and USDC, make money through lending and investing, in a manner similar to traditional banks.
Continuing with my stablecoin experience, and research…
Now, USDC unlike Tether barely, if ever, loses its PEG. Tether does not provide public auditing of its backing. This should make you beware. I personally do not invest in Tether.
Another stablecoin that I use is TUSD.
TrustToken’s TUSD is a centralized asset-backed stablecoin. It was born from a perceived need for a trustworthy fully audited stablecoin as an alternative to tether. Banking partners handle the underlying funds directly for the company.
TUSD is backed by 100% cash and equivalents, which are audited on a real-time basis. In this sense, TUSD can also be considered a “true” stable coin in terms of liquidity.
Stay diversified, stay safe. This is not financial advice, just what I have learned from my own experiences in the cryptocurrency world.
Here are other stablecoins that you should research more if you’re considering investing in them.
BUSD (Binance USD). As part of my research, I’ve also looked into USDP (Paxos Standard). Binance issues BUSD, while Paxos issues USDP. Both are centralized asset-backed stablecoins operated by Paxos Trust. The NY State Department of Financial Services oversees Paxos’ regulated stablecoin. Both stablecoins are fully backed by cash or equivalents according to Paxos. Both coins are audited monthly, and the last audit was on April 29, 2022. The audit certifies that both coins are fully backed by cash and cash equivalents. Hence, these coins can be considered “true” stablecoins in terms of liquidity.
DAI. MakerDAO has developed a decentralized, asset-backed stablecoin. DAIs are minted when sufficient collateral is placed into a smart contract on the Ethereum network, which means they are created through loans and subsequently burned when the loans are repaid or liquidated. As a result, the collateral is always fully transparent. Due to its loan-based creation, DAI is heavily overcollateralized, as it is backed by 177% by a variety of crypto assets and a small number of tangible world assets. In spite of this, DAI is heavily backed-up by centralized assets like USDC and USDP to maintain its peg, which begs the question of whether it can genuinely be viewed as decentralizing when almost half of its value is derived from centralized stablecoins.
FRAX. A fractional algorithmic stablecoin developed by Frax Finance and registered in the Cayman Islands. The coin works alongside its governance token FXS. FRAX began as 100% guaranteed by the stablecoin USDC and then loosens or tightens its collateral policy based on market demand. In case FRAX goes above $1 this acts as a signal for the protocol to relax its collateralization ratio (CR), e.g. if FRAX goes up to $1.01, then $1.01 equivalent of FXS is needed to mint 1 FRAX, redemption is the same, but inverse. The CR tightens again when the price of FRAX drops. In this sense, the stablecoin functions like a decentralized central bank. FRAX, unlike UST, also managed to hold its peg under extreme market conditions. Like DAI, it is heavily reliant on the centralized stablecoin USDC.
Which is a trusted stablecoin?
Stablecoins provide some of the stability that is lacking in most cryptocurrencies. Most cryptocurrencies are highly unstable as actual currency. Do your own diligence when investing in cryptocurrency stablecoins.
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