As the name suggests, there is a feature that distinguishes stablecoins: they ensure price stability. Namely, the stablecoin’s price may be tied to another fiat currency, such as the US dollar or the Euro, or it may just be the outcome of an algorithm.
Right now, there are around 200 stablecoin projects around the world. Nevertheless, the stablecoins list of projects that are considered to be a good investment is considerably shorter. Investor perceptions of their value vary by country. For instance, they are highly sought after in nations where the government restricts the flow of capital to ease exchanges between fiat currencies. Similar to this, they are desirable in nations with significant inflation as value support while still having worth in other ways as the first step toward decentralized assets.
Before investing in stablecoins you should understand how they work. They can be divided into various categories, based on how their steady pricing is defined.
Fiat-Backed Stablecoins
The most straightforward stablecoins to comprehend are those that are fiat-collateralized since they are backed by fiat money. This means that the same amount of declared fiat cash must be reserved in the account of the company issuing the cryptocurrency for each token of that stablecoin. Tether (USDT) is a well-known example of this type. The backing may also come in the form of a different asset, like raw resources, dollars, or a different currency, like the Euro or the Yen.
Cryptocurrency-Backed Stablecoins
Similar to the previous stablecoins, these are backed by other currencies, only this time, by cryptocurrencies. This fundamental variation affects stablecoin’s pricing. In other words, because it is based on a crypto asset, this type of coin may become volatile. One such well-known initiative is MakerDAO, which uses the Ether (ETH) coin as its primary asset.
Algorithmic Stablecoins
The price of algorithmic stablecoins is controlled by an algorithm that determines whether to issue tokens if the price is rising or to burn tokens if there is an excess supply and the price is falling. With the growth (and fall) of the Terra Luna project, this kind of stablecoin gained enormous popularity. The algorithmic stablecoins don’t provide assurances for their value because they aren’t backed by something else, like a fiat currency or digital money.
1. Tether (USDT)
For investors looking for stability, Tether is a dependable stablecoin and a virtual standard for the US Dollar. The top-ranked coin on this list offers the assurance that it has maintained its price pegged to the US dollar since its establishment in 2014 and has a daily trading volume of more than $50 billion.
It’s the crypto stablecoin with the highest market capitalization. It’s traded on more than 150 exchanges and is ranked third overall among all digital currencies, only behind Bitcoin and Ethereum.
2. USD Coin (USDC)
USD Coin is yet another top stablecoin to buy in 2022. The Center consortium is in charge of managing this cryptocurrency, which was created by Coinbase. The US dollar serves as the backing for the USD Coin (1 USDC = 1 USD).
Since leaving the exclusivity of the exchange where it was first listed, it is one of the stable coins with the fastest market growth. Based on the well-known Ethereum protocol (ERC-20), USDC is the second stablecoin and the fourth-largest digital currency in the world by market capitalization.
3. TrueUSD (TUSD)
TrueUSD, as its name suggests, is another Ethereum-based stablecoin backed by the dollar. Tether and TrueUSD are quite similar, but TrueUSD strives to be completely transparent with investors and customers.
Regular company certifications are performed, and they also tweet financial reports. The token is run by former employees of Google, PwC, and UC Berkeley. To reduce price swings, the issuers also intend to tokenize other real-world assets, such as TrueYen, and TrueEuro.
4. DAI (DAI)
DAI is an algorithmic stablecoin that has accomplished to be one of the top five stablecoins in terms of market capitalization. Similar to the other currencies on this list, its pricing is modeled after the US dollar.
However, this is accomplished using a highly effective algorithmic mechanism. Due to its independence from any sponsoring exchange, DAI is one of the most popular stablecoins.
5. Stablecoin Frax (FRAX)
FRAX is probably a less well-known token and yet mobilizes more than $5 million per day. It’s traded on more than 30 exchanges and is the 49th most popular digital currency overall.
Its cost reflects the cost of the US dollar. It has the uniqueness of being a completely decentralized currency with algorithmic backing.
Conclusion
Investors’ perspectives have changed significantly in recent years, and they started looking for cryptocurrencies with higher levels of reliability. So, stablecoins have been growing in popularity in the world of cryptocurrencies, becoming a great investment option.
