Detailed guide to stablecoins and their differences

Stablecoins are a type of cryptocurrency that seeks stable value and is usually pegged to a fiat currency such as the US dollar (USD). This sets them apart from traditional cryptocurrencies like Bitcoin, which are known for their high volatility.

Types of stablecoins

1. Stablecoins with Fiat Collateral:

  • Secured by an equivalent amount of fiat money in a bank account.
  • Examples: Tether (USDT), USD Coin (USDC), Binance USD (BUSD), TrueUSD (TUSD).
  • Issuers: Tether Limited (USDT), Circle (USDC), Binance (BUSD), TrustToken (TUSD).
  • Advantages: High liquidity, low volatility risk, familiarity for fiat money users.
  • Disadvantages: Centralization, counterparty risk, regulatory risk.

2. Stablecoins with crypto guarantee:

  • Supported by other cryptocurrencies such as Bitcoin or Ethereum.
  • Examples: Dai (DAI), Maker (MKR), Sai (SAI), BitUSD (BITS).
  • Platforms: MakerDAO (DAI), Oasis Labs (SAI), BitShares (BITS).
  • Advantages: Greater decentralization, lower counterparty risk.
  • Disadvantages: Indirect volatility (depending on the value of the cryptocurrency as collateral), greater complexity for users.

3. Algorithmic stablecoins:

  • They have no physical background but use algorithms to manage supply and demand.
  • Examples: TerraUSD (UST), Frax Share (FXS), Ampleforth (AMPL).
  • Protocols: Terra (UST), Frax (FXS), Ampleforth (AMPL).
  • Advantages: High decentralization, they are not dependent on the solvency of an issuer.
  • Disadvantages: Technical complexity, risk of attacks on the algorithm, history of disconnections from the target value.

Differences between stablecoins

GuyBackStability mechanismExamples
Fiat collateralizedFiat money (USD, EUR)1:1 reserveTether (USDT), USD Coin (USDC)
Crypto-collateralizedCryptocurrencies (BTC, ETH)Excessive collateralizationDai (DAI), Maker (MKR)
algorithmAlgorithmssupply and demandTerraUSD (UST), Frax Share (FXS)

Other types of stablecoins:

  • Commodity-linked stablecoins: Backed by gold, oil or other physical assets.
  • Regional stablecoins: Pegged to local fiat currencies such as the euro or yen.

Use cases for stablecoins:

  • Payments: They can be used to purchase goods and services online and in physical stores.
  • Trade: They can be used for trading on cryptocurrency exchanges.
  • DeFi: They are a key component in decentralized finance (DeFi), where they can be lent and borrowed and earn interest.
  • Transfers: They can be a faster and cheaper way to send money abroad.

Important considerations:

  • Counterparty risk: Fiat-collateralized stablecoins depend on the solvency of the issuer.
  • Regulatory risk: The future of stablecoins is still unclear and they may be subject to future regulations.
  • Stablecoin selection: It is important to choose the right stablecoin for your needs, taking into account the type, issuer, platform and use cases.

Where can you buy stablecoins?

You can buy stablecoins on various cryptocurrency exchanges and financial services.

However, before you start trading cryptocurrencies of any kind, it would be good advice to do your research and educate yourself if possible. There are very didactic teaching platforms like Immediate Core where you can easily understand many of the concepts necessary to minimize your risks.

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Yes, here are some popular options where you can buy them:

  1. Cryptocurrency exchange houses:
    • Platforms like Binance, Coinbase, Kraken, Bitfinex and Bittrex typically offer a wide selection to purchase from.
    • On these platforms you can exchange other cryptocurrencies such as Bitcoin or Ethereum for stablecoins.
  2. Payment services and wallets:
    • Some cryptocurrency wallets such as Trust Wallet and MetaMask allow in-app purchases using traditional payment methods such as credit cards or bank transfers.
  3. Decentralized Finance Platforms (DeFi):
    • On DeFi platforms like Uniswap, SushiSwap or Curve Finance, you can exchange other cryptocurrencies into stablecoins directly from your Ethereum wallet without the need for an account.
  4. Peer-to-peer lending and lending platforms:
    • Some platforms like Compound, Aave or MakerDAO allow you to earn or borrow stablecoins by using cryptocurrencies as collateral.

Remember to do thorough research and compare platforms’ fees, transaction limits, and security before purchasing or trading. Also, make sure you use trustworthy platforms and take appropriate security measures such as: B. enabling two-factor authentication and storing your assets in a secure wallet.

The currently most important stablecoins are

  1. Tether (USDT):
    • It is one of the oldest and most widespread.
    • 1 USDT is said to be equal to 1 US dollar.
    • It has been embroiled in controversy over its dollar reserves, despite claiming to have equivalent reserves.
  2. USD Coin (USDC):
    • Created by Circle and backed 1:1 with US dollars.
    • Regular audits to ensure the transparency and solidity of reserves.
    • Widely used on various cryptocurrency and financial services platforms.
  3. Binance USD (BUSD):
    • Backed by US dollars held in regulated banks.
    • Published in collaboration with Paxos and supported by Binance, one of the largest cryptocurrency exchange platforms.
    • 1 BUSD is said to be equal to 1 US dollar.
  4. DAI:
    • It runs on the Ethereum network and is backed by a variety of digital assets instead of fiat currencies.
    • It uses a decentralized system of collateral and credit to keep its value stable.
    • It does not rely on a centralized authority to issue or support the currency.
  5. TrueUSD (TUSD):
    • Backed by US dollars held in verified escrow accounts.
    • Regular audits to ensure the transparency and solidity of reserves.
    • It offers options for the Ethereum network and the Algorand blockchain network.
  6. Paxos standard (PAX):
    • Backed 1:1 by US dollars held in regulated bank accounts.
    • Regularly audited by independent auditing firms.
    • Designed to be fully compliant with financial regulations.

These are some of the best stablecoins on the market today, each with their own characteristics and approaches to maintaining their stability and support. It is important to note that stability and reliability may vary depending on factors such as transparency, regulation and auditing practices.

In summary

Stablecoins offer an alternative to traditional cryptocurrencies with high volatility. They can be used for various use cases such as payments, trading, DeFi and remittances. However, it is important to be aware of the risks associated with stablecoins, such as: B. counterparty risk and regulatory risk.

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