Stablecoins have transformed the world of cryptocurrencies. Many years ago, most people brushed off cryptocurrencies due to the fact that cryptocurrency prices were extremely volatile. Crypto skeptics believed that there would be no point for merchants to accept cryptocurrencies if the price could easily go down 3-5% within just a few hours. In fact, price volatility has been one of the main reasons why most people do not adopt cryptocurrencies.
And then, there’s stablecoin. It has solved the crypto price volatility issue. For you who don’t know, a stablecoin is basically a cryptocurrency with the exact 1:1 valuation to a fiat currency. Most famous stablecoins are always pegged to the valuation of the US dollar, considering that USD is still the international currency. You are probably wondering, how can a crypto token have the exact 1-to-1 valuation to USD? Well, it’s because they have their own mechanism to stabilize the price.
Most stablecoins typically have real fiat currencies in the companies’ bank accounts as collaterals to support all of the tokens that they issue on the blockchain. For example, for every 100 million X stablecoins with 1-to-1 valuation to USD, the same company that issues this X stablecoin would have $100 million USD in its bank account. And to back up that claim, the same company would publish its regular audit results.
There are, of course, some other types of stablecoins where they don’t need to “support” their stablecoins with the company’s bank accounts. They stabilize the price by using some type of algorithm, instead.
So, which stable tokens are the top stablecoins in 2020? Let’s find out together.
Paxos Standard (PAX)
Just like what the company claimed, PAX is like a digital dollar on the blockchain. The reason why we put PAX on the top of the list is because it’s the most well-balanced stablecoin on the market. It’s well-balanced because it has decent liquidity, audited by a third party regularly, and also it’s regulated by the New York State Department of Financial Services.
You can easily find PAX’s monthly attestation reports, which were done by Withum, a famous auditing firm. Withum performs these regular attestations using the AICPA standards, making the reports completely trust-able. And for this reason as well, we believe it’s safe to use PAX, as the Paxos company has proven itself to be a very transparent company.
You can also withdraw and deposit real US Dollars from and to Paxos’ bank accounts and exchange them with PAX tokens. For example, if you have $50,000 worth of PAX, you can deposit them to Paxos’ wallet addresses, and you will get your real US dollars wired into your bank account with the exact same valuation.
Of course, you will need to be KYC verified with Paxos.com before you can use this feature. Otherwise, you can always sell PAX to BTC or other cryptocurrencies in the open market.
Used to be the second most popular stablecoin after Tether (USDT), nowadays, TrueUSD has slipped down a little bit, due to the rising popularity of newer stablecoins like PAX and USDC. TUSD had a slightly smaller market cap than PAX at the time this post was written, but it also had slightly larger trading volume.
And just like PAX, TUSD is also regularly audited. The TrustToken team (the team behind TUSD) has partnered with Cohen & Company to perform the attestation. Cohen & Company is one of the top 50 public accounting firms in the world.
You can also submit your KYC with the TrustToken team if you want to cash out your TUSD tokens to real US dollars wired into your bank account. Vice versa. If you want to get the newly-issued TUSD tokens, you can send US dollars into TrustToken’s bank accounts, and you will get the TUSD into your crypto wallet. The easier way to get TUSD is just to buy them on the open market.
USD Coin (USDC)
USDC is another big competitor in the stablecoin space. Supported by Circle and Coinbase, USDC wants to make the best fiat to blockchain solution on the planet, and it has all the right recipe to do that. At the time this post was processed, USDC was comfortably sitting inside the top 30 crypto rankings by market cap, the second-highest stablecoin after Tether.
And yes, USDC uses the same approach as TUSD and PAX. USDC team has opted to cooperate with Grant Thornton LLP to perform the monthly attestation. To withdraw USDC, you can easily redeem it to real US Dollars in your bank account. Same as PAX and TUSD, you only need to finish the KYC procedure, and that’s it.
Unfortunately, despite that USDC has a higher market cap than both PAX and TUSD, but its trading volume is actually lower (which is the reason why we put them at the third-ranking and not the first). Well, to be fair, the trading volume is not that much lower, so perhaps it will change in the near future. But still, having deep liquidity is very important for any stablecoin.
Different from PAX, TUSD, or USDC, this stablecoin called DAI has a unique approach to its mechanism. DAI is often touted as the most decentralized stablecoin due to the fact that users do not need to “trust” any attestation report on any bank account nor the big name of the company. They can achieve a 1-to-1 valuation to USD without any fiat collateral due to its algorithm that was created by MakerDAO.
Basically, DAI is a loan against Ethereum. With MakerDAO app, users can take loans out in the form of DAI against their own ETH holdings. The ETH holdings will be converted to pooled ETH, for collaterals on the newly-created DAIs.
Once the user has this pooled ETH, the same user can issue a CDP (collateralized debt position), which will automatically freeze this pooled ETH and allow the same user to draw DAI against the valuation of the pooled ETH. When you draw out DAI, the ratio of debt in the same CDP will automatically increase.
Although the algorithm to stabilize DAI price is brilliant, but it has very low liquidity compared to the other stablecoins I’ve written above. For that reason, it’s not possible to put DAI on the top of the list until it has much deeper liquidity.
The most important and yet the most controversial stablecoin is Tether (USDT). It was created long before any of the other stablecoins were issued. At first, everything looked okay, but then, it was revealed that Tether has been refusing to get audited by any reputable auditing firm. Later on, it was revealed that Tether and Bitfinex (a controversial crypto exchange) shared the same ownership. Not only that, Bitfinex actually lost $850 million and covered it up by using Tether funds.
Despite all these problems, Tether remains the most popular stablecoin with huge trading volume. If you are looking to buy or sell cryptocurrencies to a particular stablecoin with a huge amount of money, your best option will still be Tether. While many skeptics believe that Tether price will not be stable any time soon due to its company’s lack of transparency, but so far, Tether has been able to maintain its peg to the USD.
There are plenty of top stablecoins out there, but these five tokens will be your best bet if you are looking to find the best option to hedge against your crypto holdings. PAX, TUSD, and USDC are all very close one to another with the exact same mechanism, and all are regularly audited by top auditing firms as well. However, if you have a huge amount of money that you want to pour in and out of a stablecoin, perhaps you might still want to try USDT, even though it’s very controversial.