Stablecoins provide numerous advantages similar to other cryptocurrencies, with their primary distinction being their stability.
In a market characterized by volatile asset prices, the ability to maintain fund value without fluctuations is crucial. This benefits not only crypto traders but also retailers accepting cryptocurrencies without concern for price volatility.
Stablecoins are often pegged to widely recognized FIAT currencies like the US Dollar or the Euro, and some are linked to commodities like Gold.
Stablecoin Applications
For cryptocurrency traders, stablecoins offer a refuge to protect their portfolio without converting to FIAT. This is especially useful during bear markets or for preserving profits in FIAT terms. Despite the rise of cryptocurrencies, FIAT remains the dominant currency for daily transactions.
Stablecoins are poised to play a significant role in decentralized finance (DeFi), offering an alternative to traditional financial systems through public blockchains.
With the growing popularity of DeFi, projects are increasingly developing innovative products like peer-to-peer loans, where stablecoins provide a stable, volatility-free means of transaction without losing cryptocurrency benefits.
Commercial Stablecoins: From JPM Coin to Libra
Stablecoins have gained significant media attention as leading companies and financial institutions explore their potential. Banks are contemplating creating their digital stablecoins, such as JP Morgan’s JPM Coin.
Facebook’s Libra project, announced in the second half of 2019, aims to be pegged to a basket of fiat currencies and other assets.
Even governments and central banks are considering stablecoins. The former Chairman of the US Commodity Futures Trading Commission (CFTC) proposed a “digital Dollar,” and a European Union draft document hinted at a potential new stablecoin.
Three Categories of Stablecoins
Stablecoins can be broadly categorized into three types:
Centralized FIAT-Backed Stablecoins
These are backed 1:1 by fiat currencies stored in bank accounts. Examples include Tether (USDT), USD Coin (USDC), and Gemini USD (GUSD). They are centralized, launched, and governed by a central organization, possibly a company, bank, or government.
Decentralized Crypto-Backed Stablecoins
This newer type lacks a central operator, relying on network user consensus for governance.
Maker DAO’s stablecoin, DAI, is an example. Users can lock cryptocurrencies, such as Ethers, as collateral for borrowing DAI, pegged to the US Dollar.
Decentralized Algorithmic Stablecoins
These are relatively new and lack collateral, relying on algorithms to maintain stable prices.
Leading Stablecoins by Market-Cap
While many stablecoins exist, some stand out in terms of usage and volume. The following illustration presents the top stablecoins by market cap as of January 2025.
Tether (USDT)
Since its inception in 2014, Tether (USDT) has dominated the stablecoin market. It converts cash into digital currency, maintaining a 1:1 price ratio with the US Dollar. According to its official website, “every tether is always 100% backed by the company’s reserves,” which include fiat currencies and cash equivalents. To store USDT safely, consider using one of the best USDT wallets.
USDT is minted on several networks, including Ethereum, EOS, TRON, Algorand, and OMG network.
Operated by Tether Limited, closely associated with iFinex, the parent company of Bitfinex, USDT has faced controversy. In 2017, the CFTC subpoenaed Tether and Bitfinex due to potential security audit issues and alleged Bitcoin price manipulation.
Market Cap: $0
Launch Date: November 2014
Launched by: Tether Limited, British Virgin Islands
Blockchain: Omni, Ethereum, Tron, EOS, Liquid
For more info, Tether Website
USD Coin (USDC)
USD Coin (USDC), launched by Coinbase and Circle, is pegged to the USD 1:1. Coinbase offers rewards for holding USDC on their exchange accounts.
Each USDC is backed by one US Dollar in bank accounts, according to Coinbase’s official website.
As an ERC-20 token on the Ethereum blockchain, users can store it in compatible wallets like MyEtherWallet and MyCrypto.
Launch Date: October 2018
Launched by: Coinbase, Circle
Blockchain: Ethereum
For more info: USDC Website
Paxos Standard (PAX)
Like other stablecoins, PAX can be transferred instantly without time or location constraints. It is pegged 1:1 to the US dollar and based on Ethereum’s ERC-20 blockchain.
Paxos Trust Company, the issuer, operates the Paxos exchange and custody services, safeguarding physical and digital assets as a regulated trust. Founded in 2012, Paxos launched the itBit exchange in Singapore, receiving its NYDFS trust charter in 2015.
Paxos claims that dollars backing each PAX are held in segregated, FDIC-insured accounts in US banks. PAX is listed on over 100 exchanges, per the official website.
Market Cap: $0
Launch Date: October 2018
Launched by: Paxos Trust Company
Blockchain: Ethereum
For more info: PAX Website
True USD (TUSD)
TUSD, an ERC-20-based stablecoin, is also pegged to the US Dollar 1:1. It is supported by over 70 exchanges worldwide, per its official website.
TrueUSD’s issuer also offers stablecoins pegged to other currencies, including TrueGBP, TrueAUD, TrueCAD, and TrueHKD.
Market Cap: $0
Launch Date: January 2018
Launched by: TrueCoin LLC
Blockchain: Ethereum
For more info: TUSD Website
Dai (DAI)
DAI differs from other stablecoins as it is decentralized. While its value is pegged 1:1 to the US Dollar, it is not governed by a central authority but by a decentralized community of MKR token holders. These holders manage the Maker Protocol, the smart contract behind DAI.
This decentralization offers benefits such as eliminating concerns about a company’s control over the stablecoin supply. It is inherently immutable, censorship-resistant, and transparent.
Maker is also active in decentralized finance (DeFi), an emerging cryptocurrency and blockchain-based technology field.
The primary risk for decentralized stablecoins like DAI is hacking into the smart contract, as there is no physical backup for DAIs in such scenarios.
Market Cap: $0
Launch Date: December 2017
Launched by: Maker Ecosystem Growth Holdings, Inc.
Blockchain: Ethereum
For more info: Maker DAO Website
Gemini Dollar (GUSD)
The Gemini Dollar (GUSD) is the first-ever regulated stablecoin, issued by the Gemini Trust Company, owned by Tyler and Cameron Winklevoss.
The famous twins also own the Gemini cryptocurrency exchange, operating as a qualified custodian under New York Banking Law and licensed by New York State.
The ERC-20-based GUSD cryptocurrency is pegged to the US Dollar 1:1, with its backing fiat currency held at State Street Bank and Trust Company.
According to the official website, a registered public accounting firm examines the USD deposit balance monthly to ensure pegging. All reports are available online.
Price: $1
Launch Date: September 2018
Launched by: Gemini Trust Company LLC
Blockchain: Ethereum
For more info: GUSD Website
Binance USD (BUSD)
Binance USD (BUSD) is a stablecoin created through a partnership between the leading crypto exchange and Paxos. It has received approval from the New York State Department of Financial Services (NYDFS) and has been tradable since 2019.
Price: $1
Launch Date: September 2019
Launched by: Binance, Paxos
Blockchain: Ethereum
For more info: GUSD Website
The Transformative Potential of Stablecoins
Stablecoins offer numerous benefits due to their digital, programmable, and blockchain-based nature. Apart from their stability, other advantages include:
Borderless Payments
Like Bitcoin, stablecoins can be transferred via the Internet without regard for borders, banks, or intermediaries. Transactions are direct, immutable, and blockchain-based, making them unblockable and censorship-resistant.
Low Transaction Fees
The absence of intermediaries and the peer-to-peer nature of stablecoins result in much lower transaction costs compared to traditional fund transfers.
Unlike bank transfers or credit card payments with immediate fees and commissions, stablecoin transactions incur minimal costs.
Faster Transactions
Blockchain-based transactions are quicker than traditional ones, primarily due to verification and anti-money laundering (AML) processes, and the lack of intermediaries and waiting periods. Transactions typically take minutes to complete.
Transparency
Stablecoin transactions occur on public blockchains, allowing users to monitor each transaction, regardless of initiation. This level of transparency is impossible with traditional payments.
Stable Value
As the name suggests, stablecoins maintain stable value. This is beneficial for those seeking a safe alternative to volatile cryptocurrencies like Bitcoin.
Challenges Facing Stablecoins
Despite their advantages, stablecoins also have drawbacks:
Centralization
Most stablecoins are tied to an organization, meaning they are centralized and controlled by a single entity, similar to banks. This contradicts the decentralized nature of cryptocurrencies. However, not all stablecoins are centralized (e.g., DAI).
Reliance on Traditional Financial Markets
Stablecoins are typically pegged to fiat currencies, making them dependent on the global economy and subject to inflation.
Lack of Regulation
The cryptocurrency field, including stablecoins, lacks regulation. Significant growth and development are needed for stablecoins to fulfill their intended transactional role.
Conclusion
Stablecoins occupy a crucial role in the crypto space, bridging the real world of fiat and cryptocurrencies. They provide a temporary refuge for investors and traders from crypto market volatility.
However, the crypto community’s reliance on stablecoins poses risks if leading stablecoins like Tether were to fail. Such an event could have more significant repercussions than hacking incidents or FUD stories.
To remain central to the crypto space, stablecoins should operate within a regulatory-compliant framework that maintains decentralization and censorship resistance.
