There are many stablecoins on the crypto market: those are tokens with a stable rate equal to the rate of their reserve asset (fiat currency, precious metal or another cryptocurrency). We recently published an article with a deep analysis of the different types of stablecoins, and today we will talk about coins you should pay attention to.
Top 3 stablecoins
For the review, we picked the first three coins from the top of all stablecoins by capitalization: they are Tether (USDT), USD Coin (USDC), Binance USD (BUSD). We thought like this: since the capitalization is so high, it means that market participants are most actively using these stablecoins. And now it only remains to figure out what their worth is.
Before we start, let's pay attention to the terms that you’ll encounter in our article:
🔸 An issuer: the company that issues stablecoins;
🔸 A custodian: an organization that is responsible for the safe storage of reserves used to provide the stablecoin’s value;
🔸 A parity: stablecoin’s value and its reserve asset equality;
🔸 A reserve asset: an asset that stablecoin is pegged to.
Now let's dive into the review. Note that all the data was compiled as of the beginning of December 2022.
🥇 Tether (USDT)
Tether is the most capitalized stablecoin. Its capitalization exceeds $65.5 billion. Tether Limited, a subsidiary of iFinex Inc., which also owns the popular Bitfinex crypto exchange, is responsible for issuing the cryptocurrency.
There are about 65.88 billion USDT circulating on the market. The emission counts Tether stablecoins on different networks (we will tell you more about the networks a little later). The number of tokens that can be issued is not limited. USDT, like other stablecoins, cannot be mined. The coin is not pre-mined either. When demand arises, the team issues a new portion of USDT.
Tether USDT is pegged to the US dollar at a 1:1 ratio, which means that 1 USDT is always worth $1. Here is Tether’s reserve breakdown:
🔹 82,45% – Cash & Cash Equivalents & Other Short-Term Deposits & Commercial Paper;
🔹 4,69% – Corporate Bonds, Funds & Precious Metals;
🔹 9,02% – Secured Loans (None To Affiliated Entities);
🔹 3,85% – Other Investments (Including Digital Tokens).
Tether’s reserves breakdown. Source: Tether's official website.
Tether does not have a third-party custodian (a company responsible for the reserves’ safety). Asset control is the responsibility of the stablecoin issuer. All collateral is held by Tether Limited. The company independently stores all reserves in its vaults.
Tether Limited periodically publishes reserve reports on the official website. The last check is dated September 30, 2022. Its author is BDO, the fifth-largest auditor in the world.
Tether went through several cases of short-term depeg. The maximum drop to $0.92 is dated April 27, 2017. USDT also fell below the dollar (to $0.9959) amid the collapse of the Terra crypto project in May 2022.
The last depeg, down 0.0028 cents, came in early November 2022. The stablecoin lost parity with the US dollar amid the collapse of the major crypto exchange FTX.
FTX ran into problems on November 6th. On this day, crypto exchange competitor Binance announced plans to sell a large bunch of native FTX tokens. The company made this decision against the backdrop of CoinDesk’s investigation, which provided evidence of FTX's insolvency.
The pressure on Binance triggered a wave of asset outflows from the crypto exchange. As a result, the trading platform faced a lack of liquidity. According to some reports, instead of sending clients' money for cold storage, the exchange and its affiliate, Alameda, used it for trading. As a result, FTX's budget got a $8 billion hole. A few days later, on November 11, the crypto exchange filed for bankruptcy.
Supposedly, in an attempt to save FTX, company representatives began selling off its assets, including USDT. Tether’s sale could be a cause of the stablecoin’s drop to $0.998. And now the coin has not fully restored parity.
Tether chart. Source: CoinMarketCap.
Tether has repeatedly restored its peg to the US dollar with the help of arbitrageurs who can earn on the difference in the cryptocurrency exchange rate. For example, when Tether falls below $1, they buy stablecoins in order to sell them at a higher price after the rate stabilizes. Despite this, some market participants believe that USDT could completely depeg from the reserve asset. The theory's main argument is that Tether does not have the declared amount of reserve assets. If the assumptions are correct and the truth comes out, according to the theory's supporters, USDT can fall to $0.
In the summer of 2022, hedge funds tried to profit from the negative predictions about stablecoin by opening short positions. Such positions would allow them to profit in the case of a significant rate drop. But their plan never worked.
Tether is available on several networks, which differ in terms of transaction fees, speed, etc. The first Ethereum-standard ERC-20 coins were released in 2015. Due to the high cost of ETH transactions and low network capacity, other USDT standards gained popularity, but ERC-20 remains the most common. It is supported by various crypto platforms, which means that it will be easiest for token owners to exchange them. There are also USDT BEP-2, BEP-20, TIP-3, and TRC-20 on the market. They are cheaper and faster, but less common.
🥈 USD Coin (USDC)
USDC stablecoin is issued by payment solutions developer Circle. 1 USDC is always worth 1 USD. The token’s capitalization exceeded $43.1 billion. The emission of the cryptocurrency is not limited. USD Coin, like other stablecoins, cannot be mined.
The coin is backed by cash and short-term US Treasury bonds. USD Coin custodians are leading financial institutions, including BlackRock and BNY Mellon. The reserves that provide the value of the cryptocurrency are hidden in their vaults. The stablecoin issuer publishes a reserve report every month. You can easily find them on the company’s official website.
USDC, in comparison with Tether, is highly resistant to negative news pressure. The stablecoin saved its parity with the reserve asset amid the Terra and FTX collapses. At the same time, we can see the propping below $1 at the end of 2021. The USDC depeg occurred during the market correction following the end of the growth phase.
USD Coin chart. Source: CoinMarketCap.
The most popular USDC version is USDC ERC-20. You can also find stablecoin in TRC-20, BEP-2, and BEP-20 standards.
🥉 Binance USD (BUSD)
Binance USD is the stablecoin of the largest crypto exchange, Binance. Like USDT, BUSD is tied to the US dollar. The capitalization of the token exceeds $22 billion. Its emission is not limited. It is impossible to mine Binance USD.
BUSD is approved by the New York State Department of Financial Services (NYDFS). Its issuer is the regulated infrastructure blockchain platform Paxos Trust Company. Binance deals only with branding issues.
Paxos provides BUSD reserve reports every month. According to the company’s filings, the cryptocurrency is backed by reserves held in either or both fiat cash and U.S. Treasury bills, (including through repurchase agreements and/or money-market funds invested in U.S. Treasury bills). Its custodian is Paxos.
Binance USD had several short-term depeg. BUSD, USDC and Tether charts’ comparison made clear that the first two turned out to be more resilient to the negative news pressure: both coins did not lose their peg amid the FTX collapse, while BUSD provided the best result.
Binance USD chart. Sourse: CoinMarketCap.
BUSD looks better than Tether because of the New York City Financial Services Authority's (NYDFS) approval. Binance USD holders also have access to benefits, such as up to 10% APY in the Binance Earn program.
Now let’s talk about the standards. Binance ERC-20 stablecoins appeared in 2019. BUSD, BEP-20, and BEP-2 were released amid the launch and modification of the crypto exchange’s blockchain. The new standards made transactions with Binance's stablecoin cheaper and faster. But ERC-20 is still the most widely used standard for BUSD.
An in-depth comparison of stablecoins
Tether is the most capitalized one. It surpassed USD Coin in terms of capitalization by 48% and Binance USD by 187%. Binance USD and USD Coin outperform Tether by posting regular collateral reports. Both tokens, unlike the USDT, are issued by a regulated company. By the way, the BUSD and USDC remain more stable in crisis situations. But Tether is still the most common stablecoin.
What to pick
If you are searching for the most secure stablecoin, you should pay attention to USD Coin and Binance USD ERC-20 tokens. If you prefer the most common one, then Tether comes out on top. The most popular are USDT ERC-20 tokens. Tether stablecoins on other networks are also quite common: if you want to save on fees, you can consider them.
In general, all three stablecoins are worthy of attention: the projects look promising and meet security requirements. You can buy USDT, USDC, and BUSD for fiat without hidden fees and with the best conditions on itez.com.
This article is not an investment recommendation. The financial transactions mentioned in the article are not a guide to action. Itez is not responsible for possible risks. The user should independently conduct an analysis on the basis of which it will be possible to draw conclusions and make decisions about making any operations with cryptocurrency.