Stablecoins are tokens that provide price stability and increase crypto adoption by limiting their speculative nature. They help users enter the crypto market and offer various strategies to make profits safely while the market is volatile. For example, users can stake tokens to earn interest, or cash out their positions to wait for a better time to enter a better price level, all without going into fiat first.
This lesson will familiarize you with the most popular stablecoins in order to facilitate your entry into crypto investing.
Read the following lessons for more beginner crypto knowledge:
USDT is the first and currently most popular stablecoin. It was launched in 2014 by Kumpulan Terhad Tether, which aimed to build a much-needed bridge between fiat currencies and cryptocurrencies. Tether’s price is pegged to the USD, which means that 1 USDT is always worth 1 USD in value (or very close to it). Even though the price fluctuates very slightly at times, it often returns quickly to 1 USD.
Tether belongs to the fiat-collateralized stablecoin category, which means it backs each USDT in circulation with the corresponding amount of fiat currency. For example, if 80 billion USDT are in circulation at some point, the same amount in fiat should be in Tether’s reserves. Tether publishes a daily record of its total currency reserves to keep that promise and maintain transparency.
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USD Coin (USDC)
USDC, the second biggest stablecoin after USDT, was created via a collaboration between crypto firm Coinbase and fintech firm Circle. As with other stablecoins, crypto investors and traders use USDC to minimize volatility and price risk associated with larger tokens.
Like USDT, USDC has a stable value of 1 USD per token. In addition, each token has collateral of the same value in reserves. Consistent with the previous example, if 80 billion USDT are in circulation, Coinbase has a responsibility to keep the same amount in fiat in its reserves.
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UST is a stablecoin that saw exponential market cap growth in 2020 and 2021. It is a decentralized and algorithmic stablecoin, meaning it doesn’t rely on a single entity to maintain its collateral. In fact, it doesn’t rely on collateral backing it at all.
Instead, the network keeps UST’s value stable with an automatic algorithm that burns 1 USD worth of TerraUSD’s reserve Terra (LUNA) in order to mint 1 UST. While this technicality may sound risky, UST’s value has maintained its value in tandem with USD.
In addition to its decentralized nature, it has gained massive popularity due to its promise of higher scalability and interoperability, and low gas fees compared to other centralized stablecoins. Furthermore, TerraUSD holders can deposit their UST tokens to Anchor Protocol, LUNA’s native lending and borrowing protocol, and earn a 20% return.
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HUSD and Binance USD (BUSD)
Many crypto exchanges like Huobi Global and Binance have their own stablecoins designed to facilitate trading, provide access to their services, and include users in special offers. Huobi Global’s HUSD and Binance’s BUSD are both backed by the USD and have been steadily pegged at a 1:1 ratio with the USD.
Additionally, they are ERC-20 tokens, which means users can use them on Ethereum and Ethereum-compatible blockchains.
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