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Top 5 Ethereum DeFi Stablecoins

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DappRadar

Let’s investigate the top 5 stablecoins in 2020.

Stablecoins are cryptocurrencies created to decrease the volatility of the coin’s price, relative to some “stable” asset or collection of assets. A stablecoin can be pegged to a currency or exchange-traded commodities.

Stablecoins vary by the underlying asset to which they are attached and can be divided into Crypto, Fiat, or Asset-backed stablecoins.

Stablecoins have become popular in the cryptocurrency industry because they don’t have the wild volatility associated with other crypto assets such as Bitcoin. Stablecoin prices are often pegged at a one-to-one ratio to a stable asset such as the U.S. dollar or Gold, which is held in reserve as collateral.

In this way, stablecoins have been heavily utilized in the growing Ethereum DeFi movement to perform a number of key functions and it is worth knowing the major players in the space.

Tether

Tether is a stablecoin pegged to the US Dollar and was the first stablecoin to be created. It is the most popular stablecoin used in the dapp ecosystem and is the largest stablecoin by circulation and market capitalization. 

The USDT peg is maintained via a one-to-one collateral ratio. Tether Limited claims that every USDT in circulation is 100% backed by actual fiat in their reserves. Tether published their balances in their Transparency page and acts as a third-party custodian for the fiat currencies backing USDT. 

USD Coin

USD Coin (USDC) represents a major breakthrough in how we use money. Digital dollars work like other digital content — they move at the speed of the internet, can be exchanged in the same way we share content and are cheaper and more secure than existing payment systems.

USDC is issued by regulated financial institutions and backed by fully reserved assets, and redeemable on a 1:1 basis for US dollars. USDC is governed by Centre, a membership-based consortium that sets technical, policy, and financial standards for stablecoins.

Dai

MakerDAO is the protocol behind the stable coin DAI  and arguably the leader in the current DeFi surge. DAI is a cryptocurrency that maintains a 1:1 peg to the US Dollar. For ease, think of 1 DAI as $1 with each DAI backed by Ethereum instead of a 3rd party. Ethereum’s volatile price means that interesting challenges arise when trying to maintain the peg.

So in essence, MakerDAO is like a credit facility that issues loans with a certain interest rate. If the interest rate (stability fee) is low, people are encouraged to borrow more (lock up more ETH). If the interest rate is high, the cost of capital is high making it less attractive to borrow.

Paxos Standard

PAX is a stablecoin backed 1:1 by USD and listed on over 90 exchanges. The Paxos Standard token is fully collateralized 1:1 by the U.S. dollar, issued by the Paxos Trust Company, and approved and regulated by the New York State Department of Financial Services.

As a digital asset, Paxos Standard can move instantaneously anywhere in the world. Built on the Ethereum blockchain, it offers the benefits of crypto-assets such as immutability and decentralized accounting.

Since it is fully collateralized by dollars, Paxos Standard offers a liquid, digital alternative to cash that is available 24/7 for instantaneous transaction settlement and is fully redeemable. 

True USD

TrueUSD is a USD-backed ERC20 stablecoin that is fully collateralized, legally protected, and transparently verified by third-party attestations. The stablecoin uses multiple escrow accounts to reduce counterparty risk and to provide token-holders with legal protections against misappropriation. TrueUSD is the first asset token built on the TrustToken platform.

True USD is partnered with licensed trust companies and banks to securely hold the funds backing TrueUSD tokens. For increased security, the trust companies handle all funds directly and the TrueUSD team does not have access, nor is involved in the transfer of, the escrowed funds.

Binance USD

Binance USD (BUSD) is a 1:1 USD-backed stable coin issued by Binance (in partnership with Paxos). Approved and regulated by the New York State Department of Financial Services (NYDFS), The BUSD Monthly Audit Report can be viewed from the official website.

Binance USD is only the latest stablecoin whose reserves are being held by Paxos. The company, which was the first crypto firm to receive a trusted charter from NYDFS in 2015 (as the itBit Trust Company), now custodies the dollar reserves for its own Paxos Standard stablecoin and Huobi’s HUSD token.

We are positive the stablecoin space will grow exponentially over the coming months and years as other dapp projects both inside the DeFi ecosystem and within other verticals look to provide economic stability within their respective ecosystems.

As always we will continue to update and refresh the list of top 5 stablecoins. Make sure to bookmark DappRadar and sign up to our newsletter below to receive updates directly to your inbox.

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