Since the start of the pandemic, demand for stablecoins has increased by 70% and its accumulated market value now exceeds $ 10 billion. Stablecoins are attractive because they allow investors to protect their risks and obtain a good ROI at the same time. Dollar stablecoin deposits can yield 10% and more – but which currency offers the best balance between security and profit?
A stablecoin is a cryptocurrency whose price is tied to a stable asset, usually the US dollar. Most stablecoins are backed by something: dollars in the issuer's accounts or other cryptocurrencies. Stablecoins use a variety of price stabilization mechanisms, and their price does not remain unchanged. Instead, it fluctuates in a small range around the target value – from around $ 0.95 to $ 1.05.
What to watch for when analyzing stablecoins
One might think that, as all dollar-indexed stablecoins have the same price, there is no difference which one to buy. However, they differ – a lot – by two main criteria:
1) Centralized vs. decentralized
In the first case, the issuer maintains full control over the 'printing' of new currencies and the storage of reserve assets (guarantee). Before purchasing centralized stablecoins, read the user agreement: the issuer may place limitations on the use of currency to avoid problems with regulators.
In the case of decentralized stablecoins, it is a smart contract that controls the issue and guarantees. The coin does not need to be supervised by any company and can work successfully even if its creators leave the project. Users can always check the value of the blocked guarantee in the smart contract. This makes decentralized stablecoins extremely transparent.
2) investment products available
Stablecoins can be deposited to earn interest on three types of platforms:
Each platform has a different list of supported currencies, and some stablecoins are easier to deposit than others. For example, there are not many offers for TUSD and BUSD.
Now, let's look at the 7 big stablecoins that offer good interest rates.
1) USDT (Tether)
The world's largest marketable stablecoin (about $ 8.8 billion), issued by Hong Kong-based company Tether Limited.
Important to know: approximately 75% of the offer is supported by a decree in USD, and the remaining 25% is supported by various credit lines issued by Tether to its partners. This became known in 2019, when Tether found itself in the middle of a scandal: the issuer was found to have transferred $ 700 million from reserve accounts to its Bitfinex co-founder. Due to the opacity of its collateral reserves, the USDT is unpopular with decentralization enthusiasts.
2) USDC (USD Currency)
In June 2020, the market value exceeded $ 720 million. The issuer is the Center consortium, formed by the company Circle and the Coinbase exchange.
Important to know: the company is registered in the US as a money transmitter and regulated under US law. For this reason, the user contract contains numerous limitations. For example, USDC cannot be used on gambling sites, or in US embargoed territories such as Pakistan and Sudan.
At the same time, USDC is the most popular cryptocurrency in the DeFi (decentralized finance) sector and can be deposited on most decentralized lending platforms. You can check the current rates here.
- Maximum interest rate: 13.39% (Nuo, decentralized)
3) USDN (USD Neutrino)
Neutrino is an algorithmic stablecoin linked to the dollar, but fully supported by WAVES. This is the first stablecoins issued on the Waves blockchain – one of the fastest in the industry, with an average transaction confirmation time of just 3 seconds. The currency was introduced by the Waves.Exchange team.
Important to know: USDN is the only stablecoin that fully supports decentralized betting. Unlike loans, where invested funds are issued to other users as loans, currencies wagered are locked into a smart contract to help maintain the blockchain. Stakeout rewards on WAVES are generated daily using the LpoS (Leasing Proof of-Stake) algorithm and automatically converted into USDN. The entire procedure is completely transparent.
- Maximum interest rate: up to 20% (Waves.Exchange, Neutrino dApp – decentralized; KuCoin, centralized). The average ROI can vary from 8% to 15% and more, depending on which part of the USDN offer is wagered, as well as the price of the WAVES.
Waves.Exchange also has several other advantages, such as zero commissions and USDN fiduciary purchases to bet using bank cards. The exchange also offers options at any time, without penalty charges and allows users to receive an ROI of up to 8 to 15% per year on their bets.
4) PAX (Paxos)
PAX was the first USD-regulated stablecoin. It is also positioned as the most liquid in terms of the number of exchanges on which it is listed. The issuer publishes monthly attestation reports on the guarantees.
Important to know: as a way to increase its market share, Paxos focused on simplifying the redemption process. Paxos wallets have an integrated exchange that allows users to convert their PAX into US dollars automatically in just a few minutes. For this, it is necessary to register and be verified on the Paxos Standard platform.
- Maximum interest rate: 8.6% (Blockfi, centralized)
5) DAI (Multicolateral DAI)
This is the stablecoin used by the largest decentralized loan protocol maker. DAI is an ERC20 token on the Ethereum blockchain. The total amount of funds blocked in Maker's smart contract exceeded $ 520 million in June 2020.
Important to know: most loans at DAI are made by margin traders. The process is completely automated: the borrower deposits a guarantee in another cryptocurrency (ETH, BAT, USDC, WBTC) in the proportion of 150% of the loan amount. If the value of the guarantee decreases or the debtor fails to pay, the guarantee will be settled (sold). Thus, the risk to creditors is extremely low. However, the way the Maker protocol works is very complicated, making DAI a less than ideal option for novice crypto investors.
- Maximum interest rate: 2.96% (Nuo, decentralized)
6) TUSD (True USD)
TUSD is a fully regulated ERC20 stablecoin, which is 100% backed by fiduciary dollars. The issuer is the TrustToken platform.
Important to know: the guarantee in USD is stored in guarantee accounts at partner banks, so that the issuer does not have access to the reserves. This makes TUSD different from USDT, whose Tether issuer can dispose of reserves. The guarantee accounts are regularly audited, although the latest published reports are from June 2019. To redeem TUSD for fiduciary USD, you must go through a KYC.
- Maximum interest rate: 8.69% (Celsius, centralized)
7) GUSD (USD Gemini)
The issuer is the Gemini Trust Company, LLC, which belongs to the famous Winklevoss twins, known by many for the movie Social Network. GUSD is issued on the Ethereum blockchain and positioned as a fully regulated and audited stablecoins. This means that the risks of the regulator are minimal.
Important to know: the company was criticized in 2019, when the accounts of several counter tables were suddenly closed when they tried to rescue large amounts of GUSD. Geminin promotes stablecoin as freely redeemable for the fiat, but at the same time it apparently tries to limit redemption rates so as not to damage the currency's market value. Interestingly, GUSD has not yet been listed on Binance.
- Maximum interest rate: 8.6% (Blockfi, centralized)
As we have seen, stablecoins indexed to the USD differ greatly in terms of both ROI and degree of centralization and transparency. In particular, when investing in centralized stablecoins, it should be remembered that price stability depends mainly on investor confidence in the issuing entity.
The biggest advantage of stablecoins is the high interest generated by loan and stake accounts – up to 20% for USD Neutrino. This makes them a very interesting alternative to volatile cryptocurrencies, such as Bitcoin.
This source of this article is portaldobitcoin.com.