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How Stable are Stablecoins?

May 17, 2022
Security, Education

Learn more about Tether USD, BUSD, USD Coin, TrueUSD and Dai Token, including their features and characteristics, as well as their respective issuer and safety ratings.

With the crypto market currently owned by the bears it’s easy to see why many people are fleeing to so called stablecoins. Since stablecoins offer more protection than “regular” cryptocurrencies, they can be used to prevent huge losses. However, not all stable coins are as stable as they claim as we could see on $LUNA and $UST example recently. Below are the Top 5 stablecoins that people are talking about right now!

Tether USD (USDT)

Tether is a cryptocurrency stablecoin, and the reason why it is called that is because it is pegged to the U.S. Dollar. It is also backed by Tether reserves, according to the Tether website. Tether was launched in July 2014 under another name (RealCoin), but it was later renamed and rebranded as Tether in November 2014. When it was launched it was initially based on Bitcoin’s blockchain. However, it now supports Bitcoin’s Omni and Liquid protocols, as well as other cryptocurrencies such as Ethereum, TRON, EOS, and Solana.

The cryptocurrency was designed to facilitate the use of fiat currencies in a digital way. It works to disrupt the conventional financial system that we currently use through a more modern approach to money. Tether has made massive progress giving customers the ability to transact with traditional currencies across the blockchain, without the inherent volatility and complexity typically associated with a digital currency.

Tether was created by co-founders Brock Pierce, Reeve Collins, and Craig Sellars as a Santa Monica based startup. Tether currently ranks #39 on Certik and has an overall security score of 95/100. If you wish to read more info on the Certik score, you can click here.

BUSD Token (BUSD)

Here we have another stablecoin called Binance USD, or BUSD, which is a regulated, fiat-backed stablecoin that is also pegged to the U.S. dollar. For every unit of BUSD, there is one U.S. dollar held in reserve. To put it differently, the supply of BUSD is pegged to the U.S. dollar at a ratio of 1:1. Given Binance’s relationship to the dollar, holders can easily swap their tokens for fiat currency and vice versa.

The token’s issuer, Paxos will release monthly attestations of BUSD’s reserves. Since BUSD is another stablecoin it is designed to maintain a stable market value even through the toughest of climates. It allows investors and traders alike to hold a low volatility asset on the blockchain without having to leave the crypto space.

When BUSD was created, its creators had three key features in mind. The first is accessibility, meaning the token is easily accessible through Paxos or Binance. Secondly, we have flexibility, to allow all crypto users to quickly convert their holdings. Thirdly, we have speed, allowing a BUSD holder to conduct lightning fast transactions.

BUSD was founded by Paxos and Binance, and is one of the few stablecoins that are compliant with the very strict regulatory standards of the NYDFS (New York State Department of Financial Services). Although BUSD is compliant with the NYDFS, it isn’t featured on Certik.

USD Coin (USDC)

USDC is another digital currency that is fully backed by the U.S. dollar thus making it a stablecoin. It is backed by U.S. dollars or dollar-denominated assets like U.S. treasury securities. Meanwhile, USDC reserves are held in segregated accounts with regulated U.S. financial institutions, and accounting firm Grant Thornton oversees these segregated accounts, and also provides monthly attestation reports.

USDC has reached a point where more wallets, exchanges, platforms, protocols, apps, and service providers are starting to integrate with USDC. By doing so it allows for payments across a number of different platforms enabling frictionless value exchange for people and businesses across the world.

USDC is managed by Centre, which is a consortium co-founded by Coinbase and Circle. Although USDC is not featured on Certik, they have had other audits take place by the multi-national tax advisory firm Grant Horton, which can be read here.

TrueUSD (TUSD)

TrueUSD is another stablecoin that has been pegged against the U.S. dollar. Even though Bitcoin remains the world’s most popular cryptocurrency, it also means that it is subject to high volatility. High spikes in volatility often means that the price of the cryptocurrency can swing drastically. However, for cryptocurrencies like TrueUSD, which are pegged against fiat currencies like the U.S. dollar often mean they experience lower levels of volatility, and so the price remains slightly more stable. Hence the name “stablecoin”.

TrueUSD emerged as an early leader in 2018 for being able to process transactions much faster. It acts as an alternative payment rail. Similar to SWIFT but available globally, more secure and much faster at settling transactions. TrueUSD is tied directly to the value of the USD and is backed with a ratio of 1:1 held in escrow accounts for the benefit of TUSD token holders. These tokens can be transferred to anyone anywhere in the world for $0.01 and can be redeemed for the underlying fiat USD after completing a KYC/AML check.

The team behind TrueUSD comes out of Stanford, UC Berkeley, Palantir, and Google. Its backers include the likes of Founder Fund Angel, Stanford-StartX, and Blocktower Capital. The TrueUSD team has developed a legal framework for collateralized cryptocurrencies in collaboration with WilmerHale and White & Case. It also has a network of fiduciary, compliance, and banking partners.

TrueUSD is currently features on Certik, with a rank #31 but it currently has no security score available. More information can be read here.

Dai Token (DAI)

Dai was first described in a white paper that was published in December 2017. It is a decentralised, crypto-collateralized stablecoin, which aims to provide stable value relative to the U.S. dollar. Dai token is built on the Ethereum blockchain in accordance with the ERC20 standard for tokens. However, it differs from centralised, fiat-collateralised stablecoins because it is backed by crypto collateral held on Maker platform as opposed to U.S. dollars that are held in a bank account.

Dai is labelled as the world’s first unbiased currency that does not discriminate, and allows any individual or business to realise the advantages of digital money. Dai is easy to generate, access, and use. Users generate Dai by depositing collateral assets into Maker Vaults within the Maker protocol. This is how Dai is entered into circulation and how users gain access to liquidity. Dai can also be obtained by buying it from brokers or exchanges, or simply be receiving it as a means of payment.

The company behind Dai (MakerDAO) was formed back in 2014 by Danish entrepreneur Rune Christensen, and in 2017, Dai and its associated smart contracts were officially launched on the main Ethereum network. Although Dai isn’t featured of Certik, it is featured on Callisto.Network.

Conclusion

No matter what stable coin you pick at the end, remember that the whole crypto universe is extremely risky and many of the financial concepts are completely new to the world. It pays of to be cautious, Do Your Own Research and do not risk investing more than you can loose.

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