Despite the overwhelmingly negative sentiment fostered by investors towards cryptocurrencies for most of 2018, the industry continues to experience rapid technological development that looks poised to improve certain aspects of this relatively new sector. Over the past 18 months in particular, various projects undertook the daunting task of limiting the volatility that is associated with cryptocurrencies by issuing so-called stablecoins .
In
contrast to traditional cryptographic tokens, stablecoins
are designed to maintain a stable value against an asset or currency
at all times. Most stablecoins today use the US dollar as their
reference point of value, and attempt to be valued as close to $1 as
possible at all times. The majority of stablecoins on the market
today are pegged to fiat currencies such as the US dollar or Euro,
with some exceptions noted below.
Stablecoins
are useful in a few different ways. For one, they limit traders’
exposure to volatility while not actively trading, serving as a safe
harbour for their investments, as stablecoins are expected to retain
their nominal value at all times. Exchanges also benefit from
stablecoins, as it allows them to create quasi-fiat pairs for
different cryptocurrencies without necessarily going through the
arduous process of licensing a fiat gateway.
Altough
there are numerous stablecoins available on the market today, we have
narrowed our list to five, taking popularity, size and uniqueness
into consideration.
Tether
(USDT)
USDT
is the king of the stablecoin hill, overshadowing all of its
competitors in volume, marketcap and availability. In fact, the USDT
token is so widespread that its daily trading volume currently
surpasses all cryptocurrencies except for Bitcoin.
Tether Ltd ., the company that issues USDT, claims each of the circulating USDT tokens is backed by 1 USD dollar in a 1:1 ratio held in their reserves. Bitfinex, which shares key management positions with Tether, was the first cryptocurrency exchange to offer USDT on their trading platform in January 2015.
The
great influence the token holds on global cryptocurrency trading
combined with Tether’s questionable transparency practices has made
USDT almost synonymous with controversy. As reported by CoinCodex ,
Tether issued a »Transparency Update« report in June of 2018, in
which the company denied allegations that they did not hold
sufficient USD reserves to back every circulating USDT token.
DAI
(DAI)
DAI is the stablecoin issued by the MakerDAO project. What seperates DAI from the rest of the list is its unique approach to ensuring a stable price. Unlike most other projects, which are backed by fiat currency reserves held in seperate or multile bank accounts , DAI depends on a system of Collaterized Debt Position (CDP) smart contracts backed by ETH to keep its price in equilibrium.
Everyone can participate in pledging Ethereum to the system, further augmenting the coins stability. The DAI token works in tandem with Maker’s token MKR, which appreciates in value in relation to the amount of ETH pedged into DAI.
By the way, one guy from Switzerland even founded a legal company with this stablecoin:
Unbanked: This Guy Founded a Legal Company with the Stablecoin. https://t.co/DqC6bsElUU @YessinSchiegg #Crypto #Banking #Banks #Cryptocurrency #Stablecoin #DAI @MakerDAO
— Crypto_Vibes (@Crypto_Vibes) February 4, 2019
TrueUSD
(TUSD)
Similarly
to Tether, TrueUSD is pegged to the US dolllar held in the companys
reserves in a 1:1 ratio. The two coins mostly diverge in the
different stances their issuers companies took in regards to
transparency.
The
TrueUSD team aims to provide greater clarity in the inner working of
their business operations and fully disclosing factual infromation
about their US dollar held reserves, protected in escrow accounts
held by multiple different banking institutions around the world.
TrueUSD is subject to monthly reports conducted by third-parties and
regularly publish their account details.
USD
Coin (USDC)
The
USD Coin is another project attempting to consolidate its position in
the stablecoin market. It was issued by the CENTRE consortium and
Circle, the fintech startup that acquired the cryptocurrency exchange
Poloniex in early 2018.
USDC
is an ERC20 standrard token aimed to maintain the 1:1 peg to the US
dollar at all times, and is guaranteed to be fully backed by monthly
reports conducted by certified third parties.
Gemini
Dollar (GUSD)
The
Gemini Dollar or the GUSD token was launched by one of the largest
cryptocurrency exchanges in the world, Gemini.
Similarly
to most stablecoin projects, GUSD is a dollar backed token, but holds
a distinct advantage compared to its competitors in the fact that its
supported by the established Gemini brand. With full support of their
infrastructure, the Gemini dollar is poised to gain momentum and cut
itself a large piece of the stablecoin market in the future.
Additionally, Gemini has retained a pass-through insurance product to provide FDIC insurance within some specific limits, while having periodic reports published by BPM Accounting and Consulting.
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