Stablecoins explained: Tether (USDT), TrueUSD, Dai, Gemini Dollar and others. Which is the best?
What is a Stablecoin ?
A stablecoin is an asset that offers price stability characteristics, which makes it suitable for certain functions like medium of exchange or store of value.
Being stable is a must in order for currency to be used in any meaningful manner. As of now, cryptocurrencies such as Bitcoin are not very effective at being a unit of account or store of value, because of the considerable price volatility.
This can make cryptocurrency adoption difficult, because actors such as businesses will not want to be exposed to extreme levels of currency risk when transacting in cryptocurrency.
Stablecoins present themselves as being a price-stable cryptocurrency solution on the blockchain in an otherwise volatile environment.
How price is ensured?
Stablecoin models can take different forms with the main ones being:
IOU Issuance Model: lnvolves a company holding assets in a bank account or vault, and then issuing tokens that will represent a claim to the underlying assets. These assets can be monetary i.e. fiat currencies such as the USD, and can also be physical assets such as gold.
Cryptoasset-collateralized Model: Similar to the previous one but issuing stablecoins that are backed by other decentralized cryptocurrency assets, such as Ether. This method involves the overcollateralization (meaning more crypto is held) of the amount of stablecoins created, so that any price fluctuations in the stablecoin can be adequately absorbed.
Seigniorage Shares Model: In this model, issued stablecoins are not actually backed by anything but instead the supply of stablecoins are algorithmically expanded and contracted by for example, a smart contract, similarly to the manner in which central banks control fiat currency money supply
Tethers are a type of digital currency built using the Omni Layer on top of the Bitcoin blockchain and Ethereum blockchain. Each tether is backed 1-to-1 by traditional currency held in Tether Limited’s reserves. The company behind Tether is also responsible for the popular exchange Bitfinex.
While Tethers are supposed to be backed by one United States dollar it is not possible to redeem them to fiat through the Tether platform. The USDT is designed to always be worth $1.00 although as seen recently that not always might be the case.
Tether has been the most popular stablecoin for a while but it has also been a source of many controversies with many people doubting that the Tethers are actually backed by anything. Then there is the fact that you can’t redeem them for fiat. Because of that people are trying to use other stablecoins
Mcap: $2.2B, Rank: 8, listed on all popular exchanges
TrueUSD, part of the TrustToken asset tokenization platform, is a blockchain-based stablecoin that, although similar to USDT, seems to be a direct response to the problems observed in Tether throughout recent times.
In the TrueUSD system, U.S Dollars are held in the bank accounts of multiple trust companies that have signed escrow agreements, rather than in a bank account controlled by a single company. According to TrueUSD, the contents of said bank accounts are published every day and are subject to monthly audits
Mcap: $163M, Rank: 47th, listed on Binance, Bittrex, DigiFinex, Upbit, Cryptopia and few more smaller exchanges
Dai (DAI) and Maker (MKR)
Maker is a smart contract platform that controls and sells Dai. Decentralized and trustless, the Maker platform stabilizes the value of Dai to one U.S. dollar using external market mechanisms and economic incentives. The system involves two coins:
Makercoin – A token with a volatile price that is used to govern the Maker Platform responsible for Dai.
Dai – A price stable coin that is suitable for payments, savings, or collateral, Dai is an Ethereum ERC20 token that is pegged to $1 USD — every Dai is worth $1,
Mcap: $63M, Rank: 94th, listed on OasisDEX, HitBTC and few smaller (mostly decentralised) exchanges.
Gemini Dollar (GUSD)
Recently introduced The Gemini dollar is issued by Gemini Trust Company, LLC, a New York trust company. Just like Paxos the stablecoin has been recently approved by New York state .
U.S. dollars that correspond to the Gemini dollars issued and in circulation are held at State Street Bank and Trust Company. On top of that the dollar deposit balance is examined monthly by BPM, LLP, a registered public accounting firm, in order to verify the 1:1 peg
Mcap: ??, Rank: ??, listed on Gemini, Bibox, HitBTC and few smaller exchanges.
Stronghold USD: stablecoin backed by IBM running on the Stellar Luments platform – one of the more promising stablecoin projects currently in the development
The most promising are: TrueUSD, Gemini Dollar and USDC. Dai is a great choice for people preferring decentralisation but it needs to be listed on more exchanges.
Not a financial advice