After Bitcoin’s birth in 2009, growth and adoption ensued, with a myriad of investors looking to this new technology. Bitcoin presented not only investment opportunities but also was a beacon of hope for financial inclusivity.
Not long after, many assets began to launch, leveraging the technology pioneered by Bitcoin. As of 2024, the realm of crypto has a variety of crypto assets, differing in type and role. Among the classes/ categories of blockchain-based assets include cryptocurrencies, DeFI tokens, NFTs, and stablecoins!
Today, our attention will be on stablecoins.
Stablecoins: A Brief Overview
Stablecoins are an exciting category of crypto assets created to address volatility. They are primarily a unique class of assets aimed at helping in making payments.
Let’s track back!
Bitcoin was the first crypto asset. While this crypto coin was primarily designed to be a payment asset, Bitcoin’s volatility has scared many investors. For this reason, a new class of crypto assets, immune to volatility, was needed.
Now, back to stable cryptocurrencies.
Through their native design, stablecoins are essentially pegged or tied to another asset, which helps them maintain their actual value. As such, unlike many traditional crypto assets whose value swings, stablecoin prices are inherently stable.
What Are the Main Types of Stablecoins?
There are different categories of stable cryptocurrencies in the vast world of crypto assets. Their differentiating factors are primarily the assets used to back them. Here are the three primary types of stable cryptocurrencies:
Fiat-Backed Stablecoins
This is the first and most popular type of stablecoins. It refers to stable crypto assets tied directly to fiat assets, i.e., national currencies. Fiat currencies like GBP, CAD, USD, and EUR are the direct peg for this class of stable assets. In many cases, each stablecoin maintains the same value as the fiat asset it is pegged to. Today, there are several top fiat-backed stablecoins, including Tether and USD Coin.
So, Here are top examples of Fiat-Backed Stablecoins:
Tether (USDT)
This is the largest stablecoin and one of the most significant assets in the crypto ecosystem. Launched in October 2014 as RealCoin, Tether has evolved to be among the top players in the realm of crypto assets. The US dollar backs it. When writing this report, USDT had a market cap of $103.7 billion, suggesting that there are around 103 billion USDT coins in circulation.
Currently, Tether is owned by Chinese company iFinex, which also owns the popular crypto exchange network Bitfinex. Its longevity in crypto has made it the most popular and trusted stablecoin across many exchanges.
USD Coin (USDC)
The second largest stablecoin is USDC. Akin to Tether, USD Coin’s peg is a reserve of USD fiat, which helps maintain price stability.
USDC was first announced in May 2018 and launched in September 2018 by Circle, a famous player in the crypto realm.
When writing this report, USDC has a market cap of just about $31 billion, placing it among the top 10 crypto assets by market cap. Like Tether, the USD coin is widely accepted across many top crypto exchanges.
True USD (TUSD)
TUSD was launched in 2018 by two issuers, TrustToken and PrimeTrust. At the time of this report, it had a market cap of about $843 million and was pegged 1:1 to the USD.
TUSD has already been listed in over 100 crypto trading platforms, including Binance, Huobi, and others, and operates on chains like Tron, Ethereum, BSC, Polygon, and Fantom.
Statis EURO (EURS)
Here comes our first EURO-backed stablecoin, EURS. Born in 2018, EURS is a product of STSS Limited (Statis).
Pegged in a 1:1 ratio with the EUR, Status EURO amassed massive usage in the European region. EURS currently has a market cap of about $134.5 million.
Paypal USD (PYUSD)
In 2023, PayPal introduced its iteration of a stablecoin, PYUSD. It is backed by USD in a 1:1 ratio. You can purchase this stablecoin from the PayPal site. You can use PYUSD in payments or even general transfers.
EURC
Finally, EURC. This stablecoin closes our list of top fiat-backed stablecoins in the crypto realm.
Circle, also the creator of USDC, ‘s product is pegged directly to the popular currency, the EURO. Launched merely in December 2023, EURC has been able to amass extensive adoption, hitting a market cap of $56 million by April 2024. While the number might seem small, this coin has only existed for about three months.
Commodity-Backed Stablecoins
Secondly, we have commodity-backed stablecoins. These are a class of stable cryptocurrencies that derive their value through holdings in a physical commodity reserve. The most popular commodity used is Gold. However, other networks created stablecoins backed by other high-value assets like Silver.
So, what are the popular commodity-backed stable crypto coins today? Here is a short list:
Pax Gold (PAXG)
One of the largest stablecoins, Pax Gold, features on our list of commodity-backed coins. Paxos’ product allows its holders to invest in physical Gold through PAXG. One fine ounce of Gold is the same value as one coin from PAXG.
With a market cap of about $394 million when this report was written, PAXG stands tall among the best commodity-backed stable cryptocurrencies.
Tether Gold
Another gold-backed stablecoin and the biggest competitor to PAXG is XAUt. Launched in January 2020 by the Tether issuer, Tether Gold intends to expose users to gold investments. It’s an ERC-20 token leveraging Ethereum smart contracts.
XAUt offers several advantages: stability, accessibility, liquidity, reliability, security, and transparency.
Algorithmic Stablecoins
The third most popular class of stable cryptocurrencies is algorithmic stablecoins. These leverage algorithmic/mathematical formulas to regulate the supply of assets, maintaining their value.
The idea of algorithmic stablecoins is to adjust the issuance of stablecoins and, hence, maintain the stable value of the assets.
In recent years, Algorithmic stablecoins have been widely discouraged, especially after Terra UST’s demise in 2022.
However, there are a few algorithmic stablecoins still operating in 2024;
- DAI – Currently the largest and most trusted algorithmic stablecoin issued by Marker Dao.
- FRAX
- MAI
- USDD
The Practical Uses of Stablecoins
Stable cryptocurrencies serve as a bridge between traditional fiat currencies and the volatile world of cryptocurrencies. Here are some key ways they are utilized:
Medium of Exchange
With their hedge against inflation, stable crypto coins seem like a more reliable solution for value exchange than Ethereum and Bitcoin. Many stablecoins, mainly fiat-backed assets, are widely used to facilitate everyday transactions like buying goods and services. Imagine paying for your morning coffee with a stablecoin.
Store of Value
Crypto assets, specifically stablecoins, have proven to be great stores of value. In countries with high inflation rates, stablecoins could be the much-needed hedge against inflation since they primarily peg against strong currencies and assets like Gold. In essence, stablecoins can be good stores of value.
Crypto Trading
The realm of crypto trading is ever-expanding as the number of cryptos, trading platforms, and traders constantly increases. However, the volatility and market crashes associated with crypto trading call for better assets to act as safe havens, which stablecoins offer. When crypto prices swing, investors speedily move their assets into stablecoins to preserve capital.
Cross-Border Payments and Remittances
Various issues, including speed and high costs, cripple Traditional Cross border transactions. All these problems are a result of having lots of processes and middlemen. But what if you could send international transactions with low expenses?
Stablecoins are perfect for cross-border transactions. Transaction settlement is almost always instantaneous, with lower fees.
Liquidity in Decentralized Finance (DeFi)
Stablecoins also help bolster liquidity in DeFI protocols. Users can lend, borrow, and earn interest on their stablecoins. Moreover, every holder can provide liquidity to Dex and lending platforms.
The Regulatory Scrutiny of Stablecoins
As the stablecoin market grows (valued at $128 billion), regulators closely monitor its impact on the broader financial system. Ensuring transparency and proper collateralization remains a priority.
In summary, stablecoins offer a bridge between the crypto world and traditional finance, providing stability without compromising the decentralized nature of blockchain technology.
Remember, stable crypto coins are an exciting development in the crypto space, and their evolution continues to shape the financial landscape.
Final Word
This guide has examined stable crypto assets in the blockchain. There are dozens of such coins in the crypto realm, and dozens more are coming. Ripple, a top-10 cryptocurrency by market cap, recently announced plans to launch its USD-pegged stablecoin later in 2024.
There was an excellent need for assets that enable investors to hedge against crypto volatility. Stablecoins came and filled the void.
