2020 has been extremely random, to say the least. Right from the Corona situation to crashing economies, we have witnessed a lot.
It has also been a reality check for those with pipe dreams about virtual currencies performing as safe-haven assets. The extremely volatile history of this market, combined with the global recession-induced due to the ongoing pandemic, has made it crystal clear that unpegged cryptocurrencies aren’t the answer to our financial woes.
However, one light amidst all this tumult was stablecoins’ emerging as viable shelters and convenient payment instruments capable of accumulating value.
For the uninitiated, stablecoins, unlike other crypto assets, are backed by real-world assets. It can be fiat money (like Euro, USD, etc.), or commodities like oil, gas, or precious metals like gold, diamonds etc.
Stablecoins are true to their names and have provided the much needed stability to the crypto community. This is largely owing to the fact that these coins are backed by traditional monetary systems, which makes them less volatile. Further, this is combined with the advantages that stem from advanced blockchain technology.
Also Read: Cryptocurrency Wallet Development Tips
Given the current circumstances, Given the current circumstances, crypto enthusiasts have been exploring the potential of crypto-collateralized stablecoins becoming a common use case and deriving the value of other cryptocurrencies used as collateral.
Although even before the pandemic, Stablecoins were increasing in demand and use. Major industry giants like Facebook, Walmart, JP Morgan, and many others were already working on Stablecoin projects.
But because of the extreme uncertainty caused by the pandemic, there has been a widespread panic asset liquidation and many investors are looking for safer ways to protect their funds.
As a result of this FUD (fear, uncertainty, despair), the trading volume of stablecoins, which has managed to remain solid despite most other cryptocurrencies going down. Talking in numbers, the adoption of Stablecoins saw an 8% increase compared to the end of 2019. Stablecoins also saw more than a 30% growth in market capitalization during the period, as their creators expanded the supply of assets-backed currencies in order to meet the needs of crypto traders and investors willing to shield their digital savings.
This boom of Stablecoin can also be attributed to the diversity of the asset class that can back the coins, which has made DeFi more accessible and also offered long-term benefits. As an example, Ethereum Stablecoins, which constitute around half of all the active stablecoins, and have a total value of over $7.3 billion seems to be performing better than traditional applications like PayPal due to significantly facilitating value transfers.
As a result, Stablecoins have become an amazing investment opportunity and initiated the much-needed DeFi renaissance. People are curious to know about the active Stablecoin projects, and list of Stablecoins in action. To help with that, we’ll talk about 5 most amazing Stablecoin projects making waves in the increasingly growing DeFi sphere.
(Some of these aren’t fully emerged yet but are widely discussed both in and out of the community).
Tether (USDT) is one of the most popular stablecoin. Launched in 2014, Tether is fiat-collateralized with a 1:1 ratio. What this means is that every USDT is backed by one dollar.
Tether is a price-stable stablecoin and comes with low risk. This is issued via the Bitcoin Blockchain using the Omni Layer. If you take a look at the Coinmarketcap price graph, you can see Tether does a great job at keeping its value around $1.00.
The way Tether works is by serving as a gateway between fiat cryptocurrencies. If someone wants to quickly jump into a trade but doesn’t want to use centralized exchange can use Tether backed with fiat money. Besides this, Tether acts as an easy gateway for users who are new to altcoins. Often, users can’t buy altcoins directly with fiat money. Therefore, it’s much easier for a new user to convert their fiat into stablecoins from which they can buy altcoins.
Also Read: Cryptocurrency Exchange Development
USDCoin or USDC is a fiat-collateralized stablecoin which formed as a result of the joint venture between Circle and Coinbase. Because Coinbase is an extremely popular crypto exchange, the popularity of USDC has also increased. \
In essence, the USDC token is an Ethereum-based token, and is distributed on the Ethereum Blockchain. One USDC is an identical 1:1 representation of a US Dollar. The Ethereum blockchain is actually important for USDC. An ERC-20 smart contract controls the issuance and the redemption of USDC tokens.
Further, the tokenization process of US dollar into USDC happens in three steps:
1. The person who wants to acquire USDC sends US dollars to the USDC issuer’s bank account.
2. The issuer issues the required number of tokens via the smart contract on the Ethereum Blockchain.
3. The person receives the required tokens while the US dollars are kept in the reserve.
This simple 3-step process is required for minting new USDC tokens. USDC is extremely popular and has high trading volumes, and is therefore always named in the best stablecoin list. In our experience with stablecoin development projects,
TUSD is a fiat-collateralized stablecoin which works on the Ethereum blockchain as an ERC-20 token. The company that is responsible for issuing the tokens is TrustToken, a platform that creates different asset-backed token options. The platform offers other stablecoins such as TCAD, TAUD, TGBP, or THKD.
TrustToken have explained the working and meaning of TrueUSD in their blog. “TrueUSD is a USD-backed ERC20 stablecoin that is fully collateralized, legally protected, and transparently verified by third-party attestations. TrueUSD uses multiple escrow accounts to reduce counterparty risk, and to provide token-holders with legal protections against misappropriation.”
If you wish to purchase TUSD tokens, you need to complete the KYC and AML processes. Once the verification has been done, you need to transfer funds to a third-party account. Just as with USDC, the smart contract will mint new TUSD tokens. Many stablecoins have adopted this process as it’s simple and easy to implement and follow.
This stablecoin by Paxo has an average 24-hour trading volume of around 250 Mn. USD. Just like USDT, PAX, too, is available at a 1:1 ratio against the US Dollar. The PAX stablecoin is issued on the Ethereum blockchain and can be stored in any Ethereum wallet that supports the ERC-20 protocol.
The company responsible for these tokens — Paxo — focuses on branding itself as a reliable and trustworthy Stablecoin issuer, hence makes it to our list of stablecoin projects that one should look out for. For that reason, Paxos has been registered under the New York State banking law. Although their way of operation is a lot different than that of a bank, because banks depend on clients’ funds to make profits. Paxos, on the other hand, is a trustworthy custodian that safely stores the deposited funds of customers. They ensure that every PAX is backed by one dollar.
Binance announced the BUSD stablecoin back in 2019, September 5th. It is backed by the user dollars at a 1:1 ratio, and runs on Ethereum. During an interview, Binance CEO Changpeng Zhao, explained why they have developed Binance USD:
“We hope to unlock more financial services for the greater blockchain ecosystem through the issuance of BUSD, including more use cases and utility through the power of stable digital assets.”
A few months later, we can indeed find more advanced financial services on Binance’s platform. At the moment, Binance offers savings products where you earn an interest on your locked tokens.
BUSD has played an important role for the platform, especially in regards to the fees that users have to pay. They’ve structured the payments in a manner that users who hold BUSD will need to pay lower transaction fees. All in all, Binance did a good job at unlocking more financial instruments with the creation of their Binance token.
MKR, short for Maker, is a crypto asset created in the Ethereum blockchain. It has been created to stabilize the value of DAI stablecoin. What it means is that DAI is a crypto-collateralized stablecoin that follows the value of one US dollar.
MKR wishes to stabilize the value of DAI using Collateralized Debt Positions (CDP) through smart contracts. Because inherently a blockchain stores every transaction that happens on it, so there is no need for a central organisation to verify the stablecoin.
Stably is the startup behind the StableUSD token. The StableUSD stablecoin is pegged against the USD at a 1:1 ratio. The collateral is in control of an American trust company by the name of Prime Trust.
StableUSD differs slightly from the other stablecoins that allow you to submit cryptocurrencies such as Bitcoin, Ethereum, or the USDT stablecoin to buy USDS tokens.
“Facebook Libra is the giant in the room all the stablecoins are watching. Libra’s reception after launch will be felt directly and indirectly by all stablecoins.” – Ian Balina, Founder and CEO of Token Metrics.
Libra, the Facebook Stablecoin, is a new type of Stablecoin cryptocurrency proposed by the Social Media giant Facebook. It is the only currency on this list that lacks a network or doesn’t exist as a cryptocurrency.
The only thing that Libra has released are basic, experimental codes. While designed to be Stablecoins, Facebook has made sure to keep the differences between Libra and other Stablecoin intact.
Unlike other Stablecoins that are pegged to one specific currency or asset, Facebook stablecoin will be pegged to a group of assets, low-volatility assets, which includes bank deposits and government securities in multiple currencies.
The goal of this Facebook Stablecoin, like many other cryptocurrencies and stablecoins, is to be more useful than the national currency in circulation. Libra is extremely intriguing because Facebook already is at the top of the food chain when it comes to reach. Libra just needs to overcome the hurdles so that the world can see if Facebook’s reach can expand to the cryptocurrency market as well.
In conclusion — towards a brighter end to 2020!
The future definitely looks promising. However, For stablecoins to be viable alternatives, they must be easy to custody, send and receive on a budget smart phone. Solutions like Argent and Celo are working hard to make this possible.
The use cases don’t stop there. Since stablecoins are programmable, their future counterparts will change how we think about money itself.
Just how Synthetix gives people exposure to gold and other commodities, there will be a growing list of local and regional stablecoins that will give community members exposure to their local economies, incentivize local spending and thus strengthen their local communities. These will act much like today’s printed local currencies (e.g., Ithaca Hours, Bristol Pound) but will be more usable and easy to deploy.
Additionally, programmable stablecoins will enable further experimentation around incentivizing spending during recessions. Direct cash rebates and negative interest rates (or demurrage) become possible on a much bigger scale than previously.
Finally, people will begin to experiment with how money itself is created. Much like how money was backed by gold, new stablecoins can be backed by tokenized resources that we want to see more of in the world (e.g., tokenized rainforests). When picking between two stablecoins, you may soon be able to choose between, say, helping to solve global warming, or contributing to it.
Out of the coming recession, we’ll see stablecoins gain broader adoption from the conversations that have started out of necessity from this new normal.
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