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Top of Most Stable Cryptocurrencies
2022-11-22 • Updated
Information is not investment advice
According to coinmarketcap.com, there are more than 9250 different cryptocurrencies. And those are registered ones, with twice as much hidden from view. An article describing them would take a year to read and won’t make any sense as half of these cryptocurrencies are already inactive. We want to spread the knowledge, though. Thus, we introduce you to our analysis of the most stable cryptocurrencies you can find, each with its pros and cons. Have a pleasant reading!
What Are Stablecoins?
You use your country’s currency to pay for goods and services in your daily life. Despite this, most countries use the USD as a universal “reserve” currency, which is convenient for measuring costs. Suppose a person or a country wants to enter the cryptocurrency world. In that case, it needs a digital currency (usually the USD) or any other asset that isn’t prone to typical crypto market volatility. Stablecoins are just what a person would want to store their money in crypto but with fewer risks involved.
Stablecoins should be collateralized with an asset to function normally. Usually, it’s a cryptocurrency collateralized by real-world assets, usually the USD. For example, if you have $1000 in USDT (stablecoin called “Tether”), you can change your money into real USD whenever you want. Tether (the company that emits USDT) stores enough dollars in its account to pay people if needed.
Other types of stablecoins often involve different collateralization (it’s when real-world assets back up crypto). Among them are commodity-based (Tether gold or Palladium coin), crypto-backed (other crypto act as collateralization), and central banks’ digital currency (CBDCs). The latter is a form of state-backed currency, just like a banknote. In this article, we’ll stick with the most popular stablecoins, which are USD-backed and cryptocurrency-backed.
Benefits of Stablecoins
The cryptocurrency market is a risky and sometimes even dangerous place where you must be aware of all risks. For example, in times of high volatility, Bitcoin can make a 10-15% move in a single day, and altcoins (other crypto coins) can experience 50% price swings in both directions. That’s where stablecoins come in handy. Here’s why stablecoins will become your friend in the crypto world.
The biggest stablecoin issuers offer a high level of safety to their holders. Such companies as Tether (USDT), Circle (USDC), and Binance (BUSD) have a multi-year track record and have proven their sustainability. You can be sure that your crypto will remain yours, and you can exchange it for real-world money on demand. However, there are major risks in terms of transparency. Stablecoins issuers often invest their funds in various assets, which can be highly-secure US treasuries or risky equities and bonds of developing economies. Risks are always involved in every part of financial actions, and stablecoins are not an exclusion.
The name “stablecoin” suggests that its price isn’t prone to volatility against the underlying asset. In the majority of cases, the second asset in the pair is the USD. Therefore, stablecoins give users a simple way to store their currency in the crypto market and have the same amount of collateralization.
Every day you can swap your USDT, BUSD, or USDC to the USD without severe limitations. While $1000 in Bitcoin can cost $800 in one day and $1200 in the other, $1000 in USDT always equals $1000 in USD. This is not a sweet place for traders, as it’s almost impossible to earn money by trading stablecoins. However, their stability is critical for the crypto market to exist: practically every trader needs a safe haven to store their money from time to time. Some traders prefer to hold most of their funds in stablecoins during bear markets like the one we have now (as of November 2022).
For nearly two years, between January 2021 and May 2022, the average fee for a transaction required by the Ethereum network (gas fee) was roughly $40, with May 1, 2022, recording the highest average daily gas cost of $196.63. For all crypto users who don’t have $100 000 in their account, such hefty fees mean no transactions till they become smaller.
As for the USDT, BUSD, or USDC, their fees are rarely above $3-5. Every time you see a high transaction fee for a stablecoin, you can swap one stablecoin for another or choose a different network to transfer the funds. It’s pretty easy and takes just a couple of minutes, providing you with low transaction fees almost anytime.
List of Most Stable Cryptocurrency in 2022
We will focus on the most popular stablecoins, mentioning the coin’s pros, cons, and short history. Most coins in this article are collateralized by the USD, and some are backed up by another cryptocurrency. After you done with this article, check out our cryptocurrency pair trading tutorial to dive deeper into the topic.
The world’s oldest and most famous stablecoin, USDT, was created in 2014 with the name “Realcoin.” Initially, it only worked on Bitcoin’s blockchain, with later updates for expansion on Ethereum, Tron, OMG, and other blockchains.
USDT mirrors the price of the USD. The peg to the USD is achieved via maintaining a sum of commercial paper, fiduciary deposits, cash, reserve repo notes, and treasury bills in reserves that are equal in USD value to the number of USDT in circulation.
Tether is prone to many litigations from the US SEC. However, it manages to avoid severe restrictions, providing a high-quality service to traders and investors. As of November 2022, USDT has a $69 billion market capitalization.
USD Coin (USDC)
USD Coin (USDC) is a stablecoin pegged to the USD on a 1:1 basis. Every unit of this cryptocurrency in circulation is backed up by $1 from the reserve, in a mix of cash and short-term US Treasury bonds. The Centre consortium, which is behind this asset, says regulated financial institutions issue USDC.
Traders prefer this stablecoin to the USDT because the US government regulates it, making the USDC as close to the digital dollar as it can be. On the other hand, such deep regulation leads to restrictions for users who act suspiciously (or seem to act so). Therefore, we cannot recommend USDC for users who don’t live in the US and don’t need US regulation to affect them.
As of November 2022, USDC has a $42 billion market capitalization.
Binance USD (BUSD)
The last on our list of the biggest stablecoins is the BUSD. It’s a 1:1 USD-backed stablecoin issued by Binance (in partnership with Paxos). Binance is approved and regulated by the New York State Department of Financial Services (NYDFS).
The BUSD ecosystem has grown exponentially over the last two years, from a $1 billion market capitalization at the start of 2021 to over $22 billion in November 2022. Now it’s the third largest stablecoin by market cap, behind Tether and USDC. This growth is largely due to more user adoption as wallets, platforms, and services support BUSD.
UST used to be a stablecoin collateralized by LUNA cryptocurrency. However, when the LUNA crash happened in 2022, the UST got unpegged from the USD and fell from $1 to $0.006. Later, it grew to almost $0.1 but lost its stability. Now traders consider UST another speculative asset that isn’t worth holding as a stablecoin.
Dai is the only stablecoin above the $5 billion market capitalization that isn’t backed by real-world assets like US Treasuries or cash. The price of DAI is soft-pegged to the USD and collateralized by a mix of other cryptocurrencies that are deposited into smart-contract vaults every time market needs the creation of a new DAI.
Unlike UST (TerraUSD), DAI is over-collateralized, meaning the provision of collateral is worth more than enough to cover potential losses in cases of default. In the case of DAI, every coin is worth $1 and is collateralized with $1.5 worth of other cryptos. It helps maintain the DAI coin’s stable price, making it the perfect choice for those who want to dive deeper into digital currency and abort all connections to the real world.
Questions about Stablecoins
Is Stable Cryptocurrency Profitable?
It depends on the scenario you’ve chosen. Although stablecoins won’t make you profit for holding them, you can stake your coins into smart contracts, earning a 1-5% annual yield without any significant risks. However, this APY is lower than the official US CPI, meaning your real result will be negative.
What is the Best Stable Coin?
It depends on the purpose of the stablecoin. The BUSD is considered the safest and cheapest in terms of fees, while DAI isn’t backed up by real-world assets, making it the perfect choice for people who want to abort connections with the US dollar.
What is a Stable Cryptocurrency?
Usually, it’s a cryptocurrency backed up by real-world assets like cash or US Treasuries that aims to maintain a peg to the USD or other assets. The main goal of the stablecoin is to provide people with stable crypto that isn’t prone to volatility.
Is Litecoin a Stable Coin?
While Litecoin can sometimes move slowly, it’s not a stablecoin because its price isn’t pegged to any asset. For example, from September 2020 to May 2021, Litecoin surged by more than 1000%, reaching $400 per coin. Discover more about how to trade crypto in our blog.
Stablecoins is an example of a deep connection between cryptocurrency and the real world. They exist for people to have the opportunity to store their money in crypto without risks of losing funds because of volatility spikes. While stablecoins don’t generate profit, a person can stake them, providing a tiny yet enjoyable income.
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