BY GUEST COLUMNIST MARY ANN CALLAHAN
Top 5 Best Stablecoins of 2020
Stablecoins are becoming more and more popular. The idea of a cryptocurrency without the chronic instability of BTC price is very appealing to many. But there are many stablecoins to choose from now, and it’s important to pick the right one for your needs.
First, what are stablecoins?
A stablecoin is a cryptocurrency that has low price volatility. Its value doesn’t change too much over time like the US dollar or Euro have stable values compared to many cryptocurrencies. You’re unlikely to wake up on a given day to find the value of the US dollar has dropped or risen by 15%. With Bitcoin, this is a regular occurrence.
Stablecoins achieve this stability in different ways. The most popular way is to back it with an asset that itself is stable in value. In this case, the stable coin could in theory be traded in at any time for this asset, hence preventing it from deviating far from the value of the underlying asset.
Why are they needed?
Often investors, traders, and businesses need currencies with low levels of volatility. Bitcoin is impractical in these circumstances. If a business is holding money in Bitcoin, it is running the risk of losing its wealth if the price of Bitcoin suddenly declines.
Also, when dealing with cryptocurrencies, trading back to fiat currencies like the US dollar is usually slow and expensive. Stablecoins provide the best of both worlds. They offer the price stability of stable assets and the speed and convenience of cryptocurrencies.
Let’s take a look at the 5 best stablecoins of 2020.
Tether is by far the most well-known and used stablecoin in the world. It’s been around for years and actually has one of the highest usage rates of any cryptocurrency in the world. It’s estimated that around 80% of all crypto trading in the world happens through the Tether stablecoin.
Tether is pegged to the US Dollar. Using Tether, you can quickly trade between Bitcoins and US Dollars without actually having to get US Dollars, which can be costly and expensive. If you have US Dollars in your wallet on a Bitcoin exchange, it’s likely that you really have Tether tokens in your wallet.
Tether is backed by the US Dollar. That means that at any time, you could trade in your Tether for US Dollars with the holding company. The company says that it has US Dollar reserves for every Tether in the marketplace.
However, the company that operates Tether has come under some controversy. The New York Attorney General’s office has said that the company was involved in a massive crypto coverup involving the Bitcoin exchange Bitfinex. The two companies have the same parent company.
This kind of scandal is huge for a stablecoin whose foundation has to be trust and stability. Because of this, a few more stablecoins are seeing the opportunity to take some of Tether’s huge market share.
USDCoin is one of the key stablecoin competitors looking to take some of that 80% market share from Tether.
USDCoin is the official stablecoin of the reputable crypto exchange Coinbase. It aims to be more tightly regulated and transparent stablecoin than Tether. The coin has obtained the financial licensing to operate in the jurisdictions it operates. The company and bank accounts that hold the currency reserves for USDCoin are regularly audited so that customers can be sure their funds are safe and compliant.
It is underwritten by US Dollars like Tether and is structured on the Ethereum network. Coinbase also uses its power as an exchange to promote USDCoin, with reward schemes for Coinbase users. The company says that USDCoin is a core part of its mission to create an open financial system for the world. This is a stable coin, which means it can give underbanked individuals an easy way to access US Dollars, without needing physical currency or a bank account.
TrueUSD is another US Dollar backed stablecoin worth mentioning. It doesn’t have the adoption rates of the above to stablecoins, but it has lots of potential.
Compared to Tether, TrueUSD has some interesting features. It provides easy redemption of USD, supposedly with one click. It’s also highly transparent and even comes with a published code of ethics. In the long-term, it’s easy to see how this emphasis on fairness and transparency will pay off for investors and users.
DAI is a stablecoin that’s very different from the ones backed by fiat currencies. DAI is pegged to 1 US Dollar, but the way it does it is unique.
Rather than offering the exchange of DAI tokens for US Dollars at any time to peg the price, DAI uses a complex system of automatically executing smart contracts, as well as a partner currency, MKR, to ensure the price of DAI stays close to 1 US Dollar. If the price of 1 DAI drifts from 1 US Dollar, tokens are bought or sold to restabilize the price. The program has managed to keep a relatively stable price in the past.
The stable coin is developed by the decentralized organization MakerDAO. DAI is an interesting piece in the puzzle of decentralized finance.
5. Paxos Standard
Paxos Standard is another alternative to Tether with a much greater emphasis on regulation, transparency, and a reduced risk of money laundering. These are an attempt to stop Paxos from being used as a money-laundering tool. Paxos Standard is very much one of the tokens in the race to take the #1 stablecoin seat from Tether.
Currencies with a stable value are an essential part of any economic system. Stablecoins are gaining popularity in the crypto world, and there are plenty of players on the market jostling for the top spot.
Keep an eye on the stablecoin market. It’s currently dominated by Tether, but lack of regulation and transparency could see one of the other coins knock it off its top spot. It could even be one of the more innovative currencies like Dai.