The first use case for stablecoins allowed people to hold their funds in crypto while avoiding the volatility of Bitcoin and other popular cryptocurrencies. One of the most prominent examples is Tether (USDT), which is pegged to the U.S. dollar and has a market worth of $2 billion.
USD Coin (USDC) uses the same platform as Tether but is pegged against the U.S. dollar and has an almost identical market cap. Binance USD (BUSD) is also pegged against the U.S. dollar but is only supported by Binance, an exchange known for its low trading fees and high liquidity.
Definition of Stablecoins
But first, let’s define stablecoins.
Its value is backed by another asset, like gold or traditional money, to stabilize crypto prices. The most common thing about stablecoins is that they track the U.S. dollar.
Aside from that, it provides faster, cheaper, and safer transactions than traditional banking, with less stringent location-based restrictions and no problems caused by holidays. The cryptocurrency market is expected to grow to $40 trillion by 2030, or 40% of the market cap of gold.
Factors that Lead to the Rise of Stablecoins
The first thing many think about when they hear about a new type of money is how to make it. How do you get rich quickly? Fortunately, creating a new kind of currency, like bitcoin or ether, is not easy. The alternative currencies are “stablecoins”: coins whose prices don’t fluctuate significantly. That means you can be confident that you’ll be able to buy and sell goods with them.
Tether was one of the first stablecoins created, with the price pegged at USD 1 per coin. You might have heard about Tether after the 2017 bull market in bitcoin when it became a popular investment for many traders; some people even suspected Tether of being used to manipulate the price of bitcoin.
The truth is that Tether was created by a company called Tether Limited; it is backed by real U.S. dollars held in banks worldwide. Although Tether is still popular among traders, its stability has been questioned after Tether Limited lost its relationship with its auditor. There’s no proof that Tether Limited has enough money to back up all the Tether being traded on cryptocurrency exchanges today.
Tether (USDT)
Tether (USDT) ranked as third of the well-known cryptocurrencies worldwide and a stablecoin whose value is capped to the U.S. dollar at a 1:1 exchange rate. Hence, the USDT price is equal to USD. It is issued by a Hong Kong-registered company, the IFinex, which also owns BitFinex.
Tether created a way to send crypto dollars to anyone at a low cost and with transparency, making it possible for cryptocurrency to be used for remittances, payments, and more.
USDC
Stablecoins, like USDC and TUSD, are cryptocurrencies pegged to the value of other assets like the U.S. dollar or gold. Unlike volatile cryptocurrencies like Bitcoin, which can lose 10 percent of its value overnight, stablecoins maintain a regular price to allow people to use them for payment without fearing losses.
For example, if you borrow $100 worth of stablecoins today and pay back your lender tomorrow, they will still have the same value they had when you borrowed them—hopefully, more because their price has increased since you got them. There is an even wider variety of stablecoin projects besides USDC and TUSD. However, these two are currently the most popular ones because they are both backed by tangible assets for added stability.
BUSD
Binance USD is a crypto token with a fixed value of $1. Essentially, it’s a stablecoin pegged to the U.S. dollar. Binance USD is the first real-world application of blockchain technology for financial purposes; it creates an efficient, transparent, and seamless bridge between fiat and crypto. It is easier to spend cryptocurrency in everyday transactions.
BUSD beares can exchange their stablecoins for USDC and vice versa. Furthermore, Binance occurs on three blockchains: Binance Smart Chain, Ethereum, and Binance Chain.
USDC vs. USDT vs. BUSD
These are some of the differences between the three.
The Blockchains
Blockchains are a way of storing data that uses cryptographic signatures to ensure accuracy. You’re using a blockchain when you track your steps on your FitBit. When you send Bitcoin or Ethereum to another person, you’re using a blockchain. And when you make transactions with BUSD or USDC, you use a blockchain.
Their Stability
Stablecoins are backed by collateral in the sold token, but they may change slightly from their original value. The stability of the USDT is questionable, as it dropped to $0.95 after the crisis one day. But it is currently trading at around $1.
Binance USD and USDC are both constant at $1. Tether’s assertion that it has sufficient dollar reserves has sparked debate, with some analysts believing it does not.
The Stablecoin Supply and Volume
The volume is analogous to transactions on a stablecoin’s blockchain. The more transactions that occur, the higher the volume is. It can make it harder for those who want to trade, as there are higher chances of orders filling at different prices. It also ensures that the supply of coins remains high, which can introduce volatility to the coin’s price.
In a Nutshell
The future of cryptocurrency is looking brighter thanks to Visa’s partnership with Circle and vendors becoming more convenient using stablecoins.
USDC, USDT, and BUSD—which together make up 93 percent of the stablecoin market cap are unquestionably the best options for investors looking to get into the stablecoin market. The choice is yours.
