What are Stablecoins? Which is the best Stablecoin?

29 Jun 2021

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Quick glance: In this educational post, we attempt to dig deeper into the world of Stablecoins. We have broken down the post into 3 parts where we discuss:

• What are stablecoins and why do they exist?
  
• Difference between USDT, USDC and DAI
  
• Which is the best Stablecoin?
  

What are Stablecoins and why do they exist?
Stablecoins are cryptocurrencies that are pegged to the US Dollar. (Pegging refers to fixed or tied). Stablecoins are essentially the backbone of the cryptocurrency trading universe.

In a world of high volatility, the Stablecoins ensure that the value of money doesn’t change drastically. tablecoinsIn this post, we will discuss the 3 different most used Stablecoins:

• USDT issued by the company Tether
  
• USDC run jointly by Circle and Coinbase
  
• DAI, fully decentralized
  
  P.S. This is a non-exhaustive list. And more Stablecoins will likely be added over time.
  
  
  USDT or Tetherus
  USDT is one of the most talked about Stablecoins. As of today, it’s market capitalization is third largest among cryptos, after Bitcoin and Ethereum. It speaks about the popularity and the liquidity of USDT. It is widely used as trading pairs such as BTCUSDT, ALGOUSDT, ETHUSDT etc.
  
  FYI, USDT is issued by a company called Tether, based out of Hong Kong. The company claims that the price of USDT will always remain at one US Dollar, as each new coin minted is backed by an equivalent amount of cash or assets being added to the company’s reserves.
  
  USDC or USD Coin
  USDC is run by a joint partnership between Circle and Coinbase. One key difference between USDT and USDC is that USDC is based on the Ethereum network. It came into existence to be used for DeFi or Decentralized Finance applications
  
  DAI
  DAI is an Ethereum-based stablecoin (stable-price cryptocurrency) whose issuance and development is managed by the Maker Protocol and the MakerDAO decentralized autonomous organization.
  The price of DAI is soft-pegged to the U.S. dollar and is collateralized by a mix of other cryptocurrencies that are deposited into smart-contract vaults every time new DAI is minted.
  
  Which is the best Stablecoin
  Although, there is no direct answer to this, different aspects can be considered to judge the usability of each coin.
  USDC is pegged 1:1 to the US dollar, held in reserve bank accounts, and is subject to regular attestations to ensure that it stays this way. This process mitigates the market risk from the currency. On the other hand, despite being hugely popular, the transparency with USDT remains questionable.
  
  To counter the transparency and centralization aspect, the Stablecoin DAI came into existence. To mint DAI, one has to deposit collateral with MakerDAO. Once the collateral has been deposited in Maker, the trader can generate a certain amount of DAI.
  
  Therefore, DAI appears to be the best Stablecoin in terms of decentralization, transparency and averse to market or liquidity risks. However, it will definitely take some time to catch up with the popularity of USDT.
  
  
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