The stablecoin market has grown substantially, with the best stablecoins helping it reach a valuation of over $180 billion as demand for secure, low-volatility digital assets surges.
Stablecoins are cryptocurrencies that are pegged to fiat currencies like the U.S. dollar or Euro.
This appeal has intensified as traditional banks face tighter regulations like Basel II and III, driving companies to adopt stablecoins for transaction efficiency.
Interestingly, stablecoin transaction volumes have even surpassed those of traditional payment processors, with Visa now incorporating stablecoins into its payment offerings.
- Show Full Guide
Top and new stablecoins in 2024
- USD Coin (USDC): Highly transparent, fully-backed stablecoin, pegged to the U.S. dollar, providing secure transactions and wide acceptance across decentralized finance and digital platforms.
- Tether (USDT): Third-ranked cryptocurrency, offering price stability with a 1:1 peg to the U.S. dollar, backed by $118.4 billion in reserves and blockchain compatibility.
- First Digital USD (FDUSD): 1:1 USD-backed stablecoin, offering a reliable and secure digital asset. It minimizes volatility, ensuring stable transactions and low fees for users in cross-border transactions.
- Global Dollar (USDG): US dollar-backed stablecoin, compliant with the Monetary Authority of Singapore’s regulatory framework and backed by Paxos, ensuring enterprise-ready digital payments while fostering collaboration.
- PayPal USD (PYUSD): A fully backed, stablecoin designed to provide seamless digital payments, offering security through U.S. dollar reserves and regulatory compliance for financial users.
- Eurite Euro (EURI): Regulated Euro-backed stablecoin, providing 1:1 pegging, blockchain versatility, and high compliance under MiCA, ideal for businesses and traders seeking reliable crypto assets.
- EUR CoinVertible (EURCV): Euro-pegged stablecoin by Societe Generale-FORGE, offering transparency, regulatory adherence, and daily collateral updates, ensuring stability and efficiency for on-chain transactions.
- USDS (USDS): Formerly known as DAI, this soft-pegged stablecoin, backed by multiple cryptocurrencies like Ethereum, USDC, and MATIC, offers a stable price and the ability to earn yield through MakerDAO’s ecosystem
- Ethena USDe (USDe): Novel synthetic dollar stablecoin that is censorship-resistant, utilizing delta-hedging and Ethereum collateral to maintain a stable peg and savings instruments.
- Ripple USD (RLUSD): Ripple’s USD-pegged stablecoin offers deep liquidity, multi-chain issuance on XRP Ledger and Ethereum, and robust backing through U.S. Treasury bonds and cash equivalents. [Launching soon]
1. USD Coin (USDC) stablecoin
| Market cap | Chains | Supported in US/EU | Top exchange to buy USDC |
| $37.6B | ETH, BNB, SOL, and other chains | Yes | MEXC |
If you are looking for a reliable stablecoin, USD Coin (USDC) remains one of the top stablecoins completing the top-10 list of most valuable cryptos. With a market cap of $36.68 billion, USDC is fully backed by U.S. dollar reserves, giving users confidence in its 1:1 dollar peg.
Issued by Circle and overseen by the Centre consortium, USDC aims to bring cashless transactions to the digital age and make it a widely accepted payment option across platforms and businesses.
USDC’s transparency is a key selling point. Circle publishes monthly reserve reports, audited by Grant Thornton, verifying that each USDC is backed by cash or U.S. Treasury bonds.
This approach, supported by BNY Mellon—America’s oldest bank—as the primary custodian and BlackRock as the asset manager, strengthens user trust and regulatory compliance, addressing concerns common with other stablecoins. Unlike some competitors, USDC has maintained a spotless record in regulatory and legal arenas, adding to its appeal.
With its regulatory compliance, regular audits, and extensive adoption, USDC is a stablecoin that stands out on any stablecoins list. Its secure backing and commitment to transparency make it an excellent choice for both crypto traders and businesses using digital assets.
Pros
- Fully backed by U.S. dollar reserves.
- Transparency through monthly audit reports.
- High regulatory compliance and trust with institutions.
- Widely adopted across exchanges and DeFi platforms.
- ORegular attestation by independent accounting firms.
Cons:
- Dependent on U.S. financial regulations and policies.
- Limited use in non-USD-centric economies.
- Not decentralized in the traditional sense.
2. Tether (USDT) stablecoin
| Market cap | Chains | Supported in US/EU | Top exchange to buy USDT |
| $130.2B | ETH, BNB, SOL, and other chains | *No | MEXC |
USDT stands out as one of the best and most established options when considering top stablecoins.
With a market cap of $125B, Tether (also known as USD₮) is the third-highest-ranked cryptocurrency. It is backed entirely by Tether’s reserves to maintain a stable 1-to-1 peg with the US dollar. Tether regularly publishes transparency reports, ensuring USDT remains trusted by millions of users worldwide.
Tether offers tokens pegged to the US dollar, the euro (EUR₮), the Chinese yuan (CNH₮), and even gold (XAU₮).
This stablecoin is built across major blockchains, including Ethereum, Tron, and Solana, ensuring wide compatibility. With $118.4 billion in reserves and $11.9 billion in net equity as of August 2024, Tether’s strong balance sheet reinforces USDT’s stability and resilience in the market.
As of August 2024, USDT has an impressive global user base of over 350 million. A unique advantage of USDT is its reserve composition of 80% invested in U.S. Treasury bills, which generated $5.5 billion in interest during 2023 alone and over $1.3 billion profit in the second quarter of 2024, highlighting its profitability as a stablecoin issuer. These earnings highlight the economic power of stablecoin assets amid rising interest rates.
As Tether explores regulatory-compliant options for the EU and with its liquidity at an ATH, USDT remains a top choice on any list of stablecoins, providing both security and versatility in the ever-changing crypto landscape.
Pros
- Fully backed 1:1 by U.S. dollar reserves.
- Widely accepted across major cryptocurrency exchanges and platforms.
- Supports multiple blockchain networks for easy transfer.
- Generates significant interest from treasury bill investments.
- Offers high liquidity, facilitating easy trade execution.
- Regularly publishes transparent reserve reports for user trust.
Cons:
- Lack of direct regulatory oversight in some regions.
- Reserves invested mainly in U.S. Treasury bills, limiting diversification.
- Limited transparency regarding some reserve asset compositions.
- Potential regulatory challenges as crypto laws evolve.
3. First Digital USD (FDUSD) stablecoin
| Market cap | Chains | Supported in US/EU | Top exchange to buy FDUSD |
| ETH, BNB, and SUI | ETH, BNB, and, SUI | * Not complaint with EU regulations | MEXC |
First Digital USD (FDUSD) is a promising addition to the list of stablecoins, emerging as a top stablecoin backed by Hong Kong-based First Digital Trust.
With a market cap of $2.3 billion, FDUSD has gained traction due to its 1:1 USD backing and commitment to stability. Its value remains pegged to the U.S. dollar, making it a reliable choice for those seeking stable digital assets amid cryptocurrency market volatility. FDUSD’s zero fees for minting and redemption further enhance its appeal, especially for cost-conscious users.
Key features of FDUSD include its liquidity-backed reserves, designed to guarantee the stablecoin’s value through secure custodial arrangements. These reserves are meticulously managed, ensuring that the total value held in assets matches or exceeds the circulating FDUSD supply. This model instills confidence in investors and merchants looking for a stable medium of exchange or store of value.
In addition, FDUSD is highly versatile. It facilitates cross-border transactions with reduced fees and faster processing times compared to traditional methods, and it supports programmable financial applications like smart contracts, escrow, and insurance.
Positioned as one of the best stablecoins to consider, FDUSD’s solid infrastructure and low-cost features make it a standout choice in the growing stablecoins list.
Pros
- Zero fees for minting and redemption.
- 1:1 USD backing for stability.
- Programmable for smart contracts and escrow.
- Enhanced cross-border transaction efficiency.
- Low transaction fees compared to traditional options.
- Issued by a regulated Hong Kong trust company.
Cons:
- Limited adoption compared to major stablecoins like USDT.
- Dependent on Hong Kong regulations for security.
- Less liquidity than larger stablecoin markets.
- Lack of integrated ecosystem for broader use.
- Limited awareness among smaller crypto communities.
4. Global Dollar (USDG) stablecoin
| Market cap | Chains | Supported in US/EU | Where to buy |
| $26.4M | ETH | * Regulated in Singapore | Kraken |
USDG, a US dollar-backed stablecoin issued by Paxos Digital Singapore, offers a compelling option for those seeking stability and regulatory compliance in 2024.
As part of a new wave of stablecoins, USDG ensures its alignment with the Monetary Authority of Singapore’s (MAS) forthcoming stablecoin framework, reinforcing its security and regulatory standing.
This adherence to global standards makes USDG one of the top stablecoins for institutions and enterprises that demand trust and transparency in digital assets.
USDG’s true strength lies in its partnership with the Global Dollar Network (GDN), a collaborative ecosystem of market leaders focused on solving the challenges facing the stablecoin industry.
With GDN’s innovative framework, participants can earn rewards for their contributions, such as minting, holding, and transacting with USDG. This creates an environment where large enterprises and individual users can thrive, contributing to USDG’s rapid growth and adoption.
USDG delivers on its promise of stability and security for users looking for high-speed transfers and programmability. With Paxos’ approval from MAS, USDG meets all the regulatory requirements, ensuring a seamless 1:1 US dollar redemption process available 24/7. Positioned as a leader in regulatory-compliant stablecoins, USDG is paving the way for the future of digital finance, making it a must-have addition to any stablecoins list for 2024.
Pros
- Compliant with MAS’ regulatory framework for stability.
- 24/7 redemption for US dollars, ensuring liquidity.
- Backed by Paxos, a trusted financial institution.
- Low-cost entry for enterprises without launching own stablecoin.
- Powered by the innovative Global Dollar Network (GDN).
- Rewards participants for minting, holding, and transacting USDG.
Cons:
- Limited adoption outside of enterprise-focused use cases.
- Regulatory oversight could lead to restrictions in certain markets.
- Dependent on the success of GDN for broader adoption
- Not as widely recognized as larger stablecoins like USDT.
- Limited scalability for smaller businesses without network integration.
5. PayPal USD (PYUSD)
| Market cap | Chains | Supported in US/EU | Top exchange to buy PYUSD |
| $543M | ETH and SOL | Yes | OKX |
PayPal USD (PYUSD) is backed 1:1 by U.S. dollar deposits, and highly liquid assets, like short-term U.S. Treasuries, are designed to maintain a stable value relative to the U.S. dollar.
With a market cap of $500 million, PYUSD addresses a core need in the stablecoin market: a trusted, easily accessible payment solution that combines the efficiency of blockchain with the dependability of a regulated, stable asset.
Issued by Paxos Trust Company, PYUSD benefits from oversight by the New York State Department of Financial Services, enhancing its credibility.
Paxos is publishing monthly reserve reports verified by independent auditors. This regulatory backing and clear reporting make PYUSD a reliable choice for users looking to avoid the volatility of other cryptocurrencies on the stablecoins list.
Operating on the Ethereum blockchain, PayPal USD allows users to buy, sell, and hold their digital dollars within the PayPal app, expanding stablecoin accessibility.
Pros
- Product of one of the most successful fintech in the world, PayPal
- Fully backed by U.S. dollar reserves for stability.
- Issued by Paxos, ensuring strong regulatory oversight.
- Easy integration with PayPal’s platform for transactions.
- Monthly reserve reports ensure transparency and reliability.
- Compatible with Ethereum and Solana blockchains for flexibility.
- Available for sending to friends without fees on PayPal.
Cons:
- Limited availability to only U.S. residents initially.
- Relatively new stablecoin with an evolving user base.
- Dependent on U.S. regulations, which may change.
- Network fees may apply for external transfers.
- Primarily accessible within the PayPal ecosystem for full benefits.
6. Eurite Euro (EURI) stablecoin
| Market cap | Chains | Supported in US/EU | Where to buy |
| $40.6M | ETH | * In compliance with EU regulations | MEXC |
Eurite Euro Token (EURI) ranks high on any list of stablecoins worth considering in 2024. This top stablecoin is pegged to the Euro at a 1:1 ratio, delivering both stability and transparency.
Backed by Banking Circle S.A., a regulated credit institution supervised by Luxembourg’s CSSF, EURI complies with the European Union’s Markets in Crypto-Assets (MiCA) regulations. Its strong regulatory foundation distinguishes it from many other new stablecoins and underscores its credibility.
As an ERC-20 token on Ethereum and a BEP-20 token on the BNB Smart Chain, EURI ensures compatibility across widely used blockchain networks.
Banking Circle S.A. has structured EURI’s funds to be bankruptcy-remote, protecting holders in the event of issuer insolvency. Independent auditors routinely attest that each circulating token is backed by Euros on a 1:1 basis, enhancing trust and transparency for users.
With a market cap of $42 million (and growing), EURI is gaining traction on major trading platforms, making it one of the best stablecoins for liquidity and usability. This combination of regulatory backing, blockchain flexibility, and secure financial structures makes EURI a leading choice among stablecoins for 2024, ideal for those prioritizing stability and compliance.
Pros
- Dual-chain infrastructure supporting Ethereum (ERC-20) and BNB (BEP-20).
- Regulated under MiCA, ensuring high compliance standards.
- Backed 1:1 by Euros, ensuring stability.
- Available on Funds are bankruptcy-remote, offering asset protection.
- Verified by top-tier auditors for trust and transparency.
- Listed on major exchanges, enhancing liquidity.
Cons:
- Limited to Euro-backed transactions, limiting versatility.
- Not as widely adopted as the other top stablecoins.
- Only exposure to regulatory changes in European markets.
- It is relatively new with a smaller market cap ($42M).
- Requires trust in the issuer (Banking Circle S.A.).
7. EUR CoinVertible (EURCV) stablecoin
| Market cap | Chains | Supported in US/EU | Where to buy EURCV |
| $41.1M | ETH | * In compliance with EU regulations (MiCA) | Bitstamp |
EUR CoinVertible (EURCV) emerges as one of the best stablecoins, especially for those seeking a Euro-backed option that is transparent and regulatory compliant.
Developed by Societe Generale-FORGE, a subsidiary of one of France’s largest banks, Societe Generale, EURCV bridges the gap between traditional finance and the digital world. With a market cap of $35 million, EURCV is designed for on-chain transactions, cash management, and liquidity solutions, making it an appealing addition to any stablecoins list.
EURCV stands out for its institutional-grade structure. Each token is backed 1:1 by fiat €, held in segregated cash accounts to ensure liquidity and security.
This stablecoin provides daily transparency on collateral positions via the Societe Generale-FORGE website, adding trust and accountability not seen with all stablecoins. In October 2023, EURCV’s updated smart contract enabled fast, cost-free transfers between whitelisted users, further enhancing its usability.
Ethereum-based, EURCV is a reliable settlement tool that strictly complies with European regulatory standards, including rigorous KYC and AML protocols.
As a top stablecoin option, EURCV offers a robust framework for businesses and investors looking for secure Euro-denominated stablecoin exposure in 2024. With daily updates on collateralization, it ensures users have confidence in its value stability.
Pros
- Fully collateralized by Euros, ensuring liquidity.
- Regular updates on collateral transparency every business day.
- Compliant with European regulatory standards, including KYC and AML.
- Secure transfers between whitelisted addresses without intermediary involvement.
- Issued by Societe Generale-FORGE, adding institutional credibility.
- Designed for use in cash management and liquidity solutions.
Cons:
- Requires whitelisting for access, limiting broad usage.
- Primarily, it is Ethereum-based, which can incur gas fees.
- Not widely adopted outside institutional circles.
- Transfers are limited to whitelisted addresses post-smart contract update.
- It is still relatively new, with potential for growth challenges.
8. USDS (formerly known as DAI) stablecoin
| Market cap | Chains | Supported in US/EU | Where to buy USDS |
| $5.3B | ETH and SOL | * Unclear | Kraken |
USDS, an Ethereum-based stablecoin, is part of MakerDAO’s innovative ecosystem, positioning itself as one of the best stablecoins to consider in 2024.
Rebranded from DAI and pegged to the U.S. dollar, each USDS token is equal to $1, making it an attractive choice for those seeking a reliable, stable asset.
Unlike traditional stablecoins, USDS is backed by a blend of cryptocurrencies, including popular assets like Ethereum, USDC, MANA, LINK, and MATIC. These are held in collateralized pools to maintain their value stability.
USDS also offers unique features, such as the ability to earn a 6.25% yield, derived from Sky Protocol’s revenue streams. This is a competitive advantage over other top stablecoins that often lack yield-generating mechanisms.
The Maker Protocol’s decentralized governance model further enhances its appeal, as USDS issuance and burns are governed through transparent, publicly recorded Ethereum-based smart contracts, ensuring users retain control over their assets in a system less susceptible to centralization risks.
With a flexible collateralization model and dynamic stability fees ranging from 2% to 50%, depending on collateral volatility, USDS has become a standout in the list of stablecoins. Its dual-layered security approach and yield potential make it one of the top choices for anyone exploring new stablecoins in 2024.
Pros
- Decentralized governance via MakerDAO ensures transparency.
- Pegged to the U.S. dollar, maintaining stability.
- Can earn 6.25% yield from Sky Protocol.
- Multiple cryptocurrencies back USDS, reducing collateral risk.
- Dynamic stability fees help maintain consistent liquidity.
- Transparent and publicly recorded smart contracts on Ethereum.
Cons:
- Requires collateral to mint, limiting flexibility.
- Yield is not guaranteed and depends on Sky Protocol’s revenues.
- Collateral volatility can impact the stability fee structure.
- Its complex collateralization model may need to be clarified for beginners.
Be aware that some platforms continue listing DAI pairs.
9. Ethena USDe stablecoin
| Market cap | Chains | Supported in US/EU | Top exchange to buy USDe |
| $3.6B | ETH, BNB, OP, and other chains | * In compliance with EU regulations | MEXC |
Ethena USDe (USDe) is a standout stablecoin on the Ethereum blockchain, offering a fresh approach for investors seeking alternatives to traditional bank-reliant stablecoins.
With a market cap of $3 billion, USDe is part of Ethena’s synthetic dollar protocol, which ensures its stability through advanced financial engineering. Using delta-hedging, Ethena holds derivatives positions to offset the risk of its staked Ethereum collateral, maintaining a consistent peg to the dollar. This approach places USDe among the best stablecoins on the market, providing a decentralized, censorship-resistant solution to digital dollar stability.
Key to Ethena’s appeal is the ‘Internet Bond,’ an innovative dollar-denominated savings option for permitted jurisdictions. This bond yields returns from staked Ethereum and funding spreads in future markets, giving USDe unique earning potential within the DeFi space. As such, Ethena addresses the limitations of stablecoins reliant on traditional financial infrastructure by creating an accessible, crypto-native savings vehicle.
Backed transparently on-chain, USDe enables investors to verify collateral holdings anytime. This transparency, combined with a mint and redeem arbitrage mechanism, further stabilizes the USDe price. As part of the new stablecoins list for 2024, USDe offers a robust, scalable alternative in the stablecoin landscape, blending security, transparency, and innovation within the DeFi ecosystem.
Pros
- Transparent on-chain collateral verification.
- Censorship-resistant and decentralized stablecoin solution.
- Combines yield from Ethereum staking and futures markets.
- Backed by the $3B Ethena market cap.
- Integrates seamlessly with DeFi ecosystems.
- Provides innovative ‘Internet Bond’ savings instrument.
Cons:
- Limited to permitted jurisdictions for ‘Internet Bond.’
- Requires technical understanding for participation.
- Stablecoin stability relies on Ethereum’s performance.
- May face regulatory challenges due to its decentralized nature.
- A complex delta-hedging mechanism could risk market instability.
10. Ripple USD (RLUSD) stablecoin
Ripple’s upcoming stablecoin, RLUSD, is quickly positioning itself as one of the best stablecoins to look out for in 2024. Built to be pegged to the U.S. dollar, RLUSD promises deep liquidity and will be issued on both the XRP Ledger and Ethereum blockchains.
This multi-chain approach expands its accessibility across diverse ecosystems. Ripple has backed RLUSD with a segregated reserve of U.S. Treasury bonds, dollar deposits, and cash equivalents, ensuring each token is redeemable 1:1 for USD.
Currently, in testing on both the XRP Ledger and Ethereum mainnet, RLUSD is awaiting regulatory approval from the New York Department of Financial Services. Ripple has also partnered with major exchanges and market makers, such as B2C2 and Keyrock, to ensure strong liquidity and adoption. The firm’s advisory board includes prominent figures like Sheila Bair, former FDIC Chair, and Chris Larsen, Ripple’s co-founder.
Ripple has identified several key use cases for RLUSD, including cross-border payments, tokenization of real-world assets, and seamless on/off-ramps for crypto exchanges. With monthly third-party audits conducted by BPM, RLUSD is set to meet the regulatory standards for transparency and trust.
Pros
- USD-backed stability with 1:1 redemption.
- Multi-chain support on XRP Ledger and Ethereum.
- Instant cross-border settlements with minimal fees.
- Transparent reserves with monthly third-party audits.
- Strong liquidity supported by major market makers.
- Backed by trusted assets like U.S. Treasury bonds.
Cons:
- Still awaiting regulatory approval from New York DFS.
- Dependent on Ripple’s partnerships for liquidity.
- May face market adoption challenges in a competitive stablecoin market.
- Not fully decentralized due to Ripple’s oversight.
- Regulatory uncertainty may impact future use cases.
Ripple USD is still under development and is yet to launch.
What are stablecoins?
Stablecoins represent a different type of cryptocurrency designed to maintain a stable value, often by being pegged to traditional assets, especially fiat currencies (such as the U.S. dollar, Japanese YEN, Euro, etc.) or commodities (like gold or Bitcoin).
Unlike other cryptocurrencies characterized by continuous volatility, stablecoins aim for consistency, making them a reliable choice for everything from daily transactions and remittances to secure storage within digital economies.
They achieve stability through various mechanisms (as you discovered from the coins above): some are backed by cash or liquid assets reserves, others are over-collateralized with crypto assets, and a few employ algorithms to adjust supply based on market demand.
This versatility makes stablecoins extremely special for the cryptocurrency ecosystem. They enable users to trade, earn interest, and safely exit volatile positions. With a market cap topping $180B (as of this article), Stablecoins have gained popularity for use within DeFi platforms and exchanges as a secure means of transferring funds, lending, borrowing, and even engaging in cross-border transactions.
By combining blockchain transparency with the stability of traditional finance, stablecoins bridge a critical gap within the crypto market. They allow the benefits of cryptocurrencies without the typical price swings.
Stablecoins combined market cap | Source
What are Stablecoins used for?
In regions where inflation erodes the value of local currencies, stablecoins offer a refuge. Countries like Turkey, Venezuela, and Argentina have seen citizens increasingly turn to stablecoins to preserve their purchasing power.
Individuals can protect their assets from depreciation by swapping volatile local currencies for stablecoins pegged to the dollar. This use case highlights the importance of stablecoins for those living in economies suffering from high inflation rates.
Stablecoins are also valuable in providing liquidity for cryptocurrency exchanges. Swapping one cryptocurrency for another is often not a direct trade; the transaction typically goes through a stablecoin as an intermediary, enhancing liquidity.
Stablecoins also provide a safer method for portfolio rebalancing without incurring significant transaction fees, especially when using Layer-2 solutions in DeFi.
The future of stablecoins looks promising, with more use cases emerging, particularly in direct purchases. For example, paying for high-ticket items like watches or electronics with stablecoins could eventually replace credit card payments, offering faster, cheaper transactions with minimal fees.
Benefits of holding stablecoins
Holding stablecoins provides a unique bridge between the stability of fiat currencies and the flexibility of the crypto ecosystem. One of the main benefits is their price stability, as they’re typically pegged to stable assets like the USD, offering a reliable store of value even in volatile markets. This low volatility makes stablecoins attractive for risk-averse investors who want exposure to crypto without the wild price swings.
Stablecoins also hedge against inflation in regions where local currencies are rapidly devaluing. In countries like Argentina, Venezuela, and Lebanon, where hyperinflation is an everyday reality, holding assets in a stable, USD-pegged currency offers a critical means to preserve purchasing power.
Stablecoins in DeFi
Stablecoins are a gateway to DeFi accessibility for those active in decentralized finance. They power various financial activities like lending, borrowing, and yield farming without requiring exposure to market volatility. By keeping a position in stablecoins, users can participate in the DeFi ecosystem, benefit from passive income opportunities such as staking or yield farming on their crypto apps, and earn interest on stable assets.
Another key benefit of stablecoins is their fast transaction speed. They enable near-instant transfers across borders, independent of traditional banking hours and systems, which often charge higher fees and have delays. Plus, they’re accessible 24/7, ensuring constant liquidity and accessibility, which isn’t always possible with traditional banks.
Finally, stablecoins can provide enhanced security and privacy in transactions, which traditional financial channels sometimes lack. Their privacy features make them preferable for individuals who prioritize secure, discreet transactions without the overhead and delays often involved in traditional banking systems.
In summary, stablecoins offer an essential tool for financial resilience, especially in regions grappling with currency instability. They combine the security and stability of fiat currency with the flexibility and functionality of digital assets, catering to diverse financial needs and broadening access within the crypto ecosystem.
What are the risks of holding stablecoins?
Like any digital asset, buying and holding stablecoins has its risks. Below are the top risks of possessing stablecoins.
1. De-pegging risks
Stablecoins can lose their peg to the dollar or other assets during market stress or poor collateral management, causing price instability. If a stablecoin fails to maintain its peg, typically due to insufficient reserves or market disruptions, it may no longer trade at its intended value.
2. Regulatory developments
Regulatory shifts may restrict stablecoin trading or impose heavy compliance burdens, affecting availability and liquidity. Governments may introduce new rules limiting stablecoin use or forcing issuers to meet strict regulations, impacting holders’ ability to transact.
3. Counterparty risk
Stablecoin issuers hold collateral and reserves; if they fail or mismanage funds, stablecoin holders may face losses. If the entity managing the stablecoin defaults or faces insolvency, holders may not recover funds, as they rely on a central issuer’s stability.
4. Collateralization risk
Not all stablecoins are fully backed; under-collateralized stablecoins or insufficient collateral reserves can destabilize a stablecoin during market stress, leading to value-loss exposing holders to losses.
5. Liquidity risk
In times of market turbulence or rapid sell-offs or, in short, during high-demand situations, these digital currencies may experience reduced liquidity, making it harder to trade or redeem them at their pegged value, potentially stranding holders during crises.
6. Interest rate and yield risk
With central banks increasing interest rates, stablecoins may offer low or negative real returns, reducing the appeal of holding them long-term. As interest rates rise, stablecoins yield comparatively less, making them less attractive to holders seeking returns that keep up with inflation. In summary, in an environment of rising rates, the opportunity cost of holding stablecoins increases, as other assets may offer better returns without inflation risk.
How can you earn from stablecoins?
Earning from stablecoins is a compelling option for risk-averse investors looking to avoid crypto market volatility. One primary method is through staking, where users lock stablecoins on platforms like Binance, MEXC, or Coinbase, often earning yields between 2% and 8%. These returns vary by platform, network demand, and duration of the lock-up period.
Another popular way to generate income from stablecoins is through lending and borrowing platforms in the DeFi space. Protocols like Aave, Compound, and MakerDAO allow users to lend their stablecoins, earning interest as borrowers pay fees. The average yield here can range from 1% to 12%, depending on market conditions and the platform’s interest rate model.
Yield farming is another DeFi method in which stablecoins are provided as liquidity on decentralized exchanges (DEXs) such as Uniswap or Curve. Users earn a share of trading fees plus potential reward tokens, enhancing returns but with a higher risk level than staking or lending. These earning strategies can be stacked for compounding effects.
Still, investors should assess platform risk, interest rate fluctuations, and potential exposure to platform-specific vulnerabilities to manage their stablecoin earnings effectively.
Types of Stablecoins
With different types of Stablecoins, each backed by various assets, let’s briefly break down four of the most popular categories of Stablecoin tokens and understand how they differ from each other:
Fiat-collateralized Stablecoins
Fiat-collateralized stablecoins are pegged to fiat currencies like the US dollar, where each coin is backed by an equivalent amount of fiat currency in reserve. Fiat-backed stablecoins offer price stability and are often used in trading and as a store of value.
Crypto-collateralized Stablecoins
Crypto-collateralized stablecoins are backed by more ‘stable’ cryptocurrencies like Bitcoin as collateral, typically in an over-collateralized manner. Smart contracts are used to maintain their stability, adjusting collateral when the price fluctuates.
Algorithmic Stablecoins
Algorithmic stablecoins often use two tokens to maintain their stability. One coin maintains the fiat currency peg, and the second is used for management. Of the most famous algorithmic stablecoins is Terra Luna, which lost its peg to the U.S. Dollar.
The EU strongly opposes algorithmic stablecoins.
Commodity-collateralized Stablecoins
Commodity-collateralized stablecoins are backed by other physical assets and commodities such as gold or oil. Their value is directly tied to the value of the underlying commodity – usually a more stable asset or precious metals, offering a hedge against inflation or market instability.
What are the differences between algorithmic and collateralized stablecoins?
To better visualize how these two popular stablecoins compare to each other, let’s break down their fundamentals:
| Feature | Algorithmic Stablecoins | Collateralized Stablecoins |
| Stability mechanism | Relies on algorithms and smart contracts to adjust supply and demand | Backed by a reserve of assets, usually fiat currency or cryptocurrencies |
| Collateralization | No direct collateralization | Overcollateralized or partially collateralized |
| Decentralization | Highly decentralized, often controlled by a decentralized autonomous organization (DAO) | Can be decentralized or centralized, depending on the issuer |
| Risk | Higher risk due to reliance on algorithms and potential for price instability | Lower risk due to asset backing, but still subject to market fluctuations |
| Transparency | It is less transparent, as the mechanisms for maintaining stability can be complex | It is more transparent, as the reserve assets can be audited and verified |
| Regulatory Scrutiny | Less regulatory scrutiny, as they are often not considered securities | More regulatory scrutiny, as they may be subject to regulations for traditional financial assets |
| Sustainability | Less sustainable, as they may require continuous intervention to maintain stability | More sustainable, as tangible assets back them |
Are stablecoins regulated?
The European Union (EU) and the United States (US) have taken distinct approaches to regulating these digital assets – which we’ll explore below:
European Union (EU): MiCA and Stablecoin Regulation
The EU has taken extra measures regarding crypto-asset regulation with the Markets in Crypto-Assets Regulation (MiCA), which came into effect in June 2023. MiCA provides a comprehensive framework for crypto-assets, including centralized stablecoins and even decentralized stablecoins, to ensure consumer protection, market integrity, and financial stability.
MiCA categorizes stablecoins into two types:
- E-money tokens (EMTs): These are stablecoins pegged to a fiat currency and primarily used as a means of payment or exchange. EMTs are subject to stricter regulations, including capital requirements, reserve asset restrictions, and operational resilience standards.
- Asset-referenced tokens (ARTs): These are stablecoins backed by a basket of assets, such as securities or commodities. ARTs are subject to less stringent regulations than EMTs, but they still require transparency and disclosure requirements.
Significant stablecoins are identified based on market capitalization, user base, and cross-border activity. These stablecoins will be required to maintain higher capital buffers, undergo regular stress tests, and comply with stricter operational resilience standards.
The key differences between the US and Europe
Key differences exist between the EU and the US regarding the regulation of stablecoins:
- Regulatory classification: MiCA categorizes stablecoins based on their underlying assets and use cases, while the US approach is more ad hoc and depends on each stablecoin’s specific characteristics.
- Regulatory scope: MiCA provides a comprehensive framework for all types of crypto-assets, including stablecoins, while the US regulatory landscape is more fragmented.
- Regulatory intensity: MiCA imposes stricter regulations on significant stablecoins, while the US approach is less prescriptive.
These differences have significant implications for the global stablecoin market. Clear EU regulations might entice stablecoin firms seeking a more stable regulatory landscape.
However, regulations could hinder stablecoin development and market expansion. In contrast, the fragmented US regulations risk slowing stablecoin development by fostering uncertainty. But, less strict rules might encourage new projects and competition.
Regarding a global outlook, international cooperation will also be crucial in developing a coordinated global regulatory framework for stablecoins. This will help ensure consistency, reduce regulatory arbitrage, and promote fair competition.
Methodology
The stablecoins listed on this page were examined based on their popularity and innovation. As regulations accelerate, these coins are expected to be the most popular stablecoins.
Historically, these stablecoins have held their peg or were able to swiftly recover from unforeseen events. While some of these coins are relatively new, they are managed by well-capitalized institutions.
FAQs
How many stablecoins are available?
What is the latest stablecoin?
What are stablecoins used for?
What can I buy with stablecoins?
Do I need a crypto wallet to buy stablecoins?
References:
- Latin America’s Search for Economic Stability: The Rise of Stablecoins Amid Volatility | Chainalysis
- The EU Markets in Crypto-Assets (MiCA) Regulation Explained | Legal Nodes
- Stablecoins Unlikely to Be Subject to the SEC’s Jurisdiction | Goodwin Law Firm
- PayPal Launches U.S. Dollar Stablecoin – Aug 7, 2023 | PayPal NewsRoom
- Ripple Names Exchange Partners for Stablecoin RLUSD | PYMNTS
