What is a stablecoin? Types, Use cases and Best Stablecoins in 2023

Stablecoins are a type of cryptocurrency that is pegged to a stable asset, such as the US dollar, to minimize price volatility. They are designed to provide the benefits of traditional fiat currencies, such as stability, while still utilizing the advantages of the blockchain technology.

The purpose of this article is to provide an overview of the best stablecoins in 2023. As the cryptocurrency market continues to evolve, it can be challenging to keep track of the top stablecoins to buy. In this article, we will take a look at the top 5 stablecoins in the market and compare them based on factors such as market capitalization, liquidity, and use cases.

First, let’s define what stablecoins are and how they work.

What are Stablecoins and how do they work?

Stablecoins are digital tokens that are backed by a stable asset, such as the US dollar. They are designed to minimize price volatility by maintaining a 1:1 ratio with the underlying asset. The value of the stablecoin is tied to the value of the underlying asset, which means that the price of the stablecoin will not fluctuate as much as other cryptocurrencies, such as Bitcoin or Ethereum.

The most common way to create a stablecoin is through a process called collateralization. This means that the issuer of the stablecoin holds a certain amount of the underlying asset in reserve. For example, if the stablecoin is pegged to the US dollar, the issuer would hold a certain amount of US dollars in reserve to back the stablecoin.

What are the Different Types of Stablecoin?

Some of the most common types include:

1. Fiat-collateralized stablecoins: These stable digital assets are backed by fiat currency reserve, such as the US dollar, and can be traded on a 1:1 basis with the underlying fiat currency. Examples include USDT, USDC, and BUSD.
2. Crypto-collateralized stablecoins: These stable crypto assets are backed by a reserve of other digital currencies, such as Ethereum, Tron, or Bitcoin and can be traded on a 1:1 basis with the underlying cryptocurrency. Examples include DAI, WBTC, and sUSD.
3. Non-collateralized stablecoins: These stablecoins are not backed by any specific assets and instead rely on complex algorithms and smart contracts to maintain price stability. Examples include Ampleforth and Basis.
4. Algorithmic stablecoins: These stablecoins use a combination of smart contracts and algorithms to maintain price stability. They are not backed by any specific assets, but rely on their underlying protocols to stabilize their value. Examples include seigniorage shares and seigniorage-style stablecoins.
5. Commodity-backed stablecoin: These stablecoins are backed by physical commodities such as gold, silver, oil etc. Examples include Digix Gold Token (DGX) which is backed by gold.
6. Central bank digital currency (CBDC): These are digital versions of a country’s fiat currency that are backed by the reserve or central bank of that country. Examples include China’s Digital Yuan and Indian CBDCs.

The landscape of stablecoin is evolving rapidly and new types of stablecoins are constantly being developed and launched.

Benefits of using Stablecoin in 2023

Price stability

One of the main benefits of stablecoins is that they are pegged to a stable asset, such as the US dollar, which means that their value does not fluctuate as much as other cryptocurrencies, such as Bitcoin or Ethereum. This makes stablecoins a more reliable store of value and a better option for transactions or investments where price stability is important.

Increased accessibility and adoption

Stablecoins are generally easier to use and understand than other cryptocurrencies, which makes them more accessible to a wider range of people and businesses. This increased accessibility and adoption can help to drive the growth and mainstream acceptance of the cryptocurrency industry as a whole.

Decentralized finance (DeFi)

Stablecoins can be used as a collateral in decentralized finance (DeFi) applications, such as lending and borrowing, which can offer higher returns and more options for investors.

Borderless transactions

Stablecoins can be used for borderless transactions, which means that they can be sent and received anywhere in the world without the need for traditional banking systems. This can help to lower transaction costs, increase efficiency, and increase financial inclusion for people in countries with weak financial systems.

Faster and cheaper transactions

Transactions with stablecoins are generally faster and cheaper compared to traditional banking transactions, as they do not require intermediaries like banks or payment processors.

It’s worth noting that it’s always recommended to do a thorough research before investing in any crypto asset.

Best Stablecoins to Use and Hold in 2023

Now, let’s take a look at the best stablecoins in 2023.

1. USDT (Tether) – With a market capitalization of over $40 billion, USDT is currently the largest stablecoin in the market. It is pegged to the US dollar and is widely used on cryptocurrency exchanges for trading and as a store of value.
2. USDC (US Coin) – USDC is a stablecoin created by Circle and Coinbase. It is also pegged to the US dollar and has a market capitalization of over $2 billion. USDC is widely used in decentralized finance (DeFi) and is supported by several crypto wallets.
3. BUSD (Binance USD) – BUSD is a stablecoin created by Binance and is pegged to the US dollar. With a market capitalization of over $1 billion, BUSD is used for trading on the Binance exchange and for various DeFi applications.
4. DAI (Dai) – DAI is a decentralized stablecoin created by the MakerDAO project. It is pegged to the US dollar but is not backed by a centralized entity. Instead, it is backed by collateral in the form of other cryptocurrencies, such as Ethereum. DAI has a market capitalization of over $500 million.
5. TUSD (TrueUSD) – TUSD is a stablecoin created by TrustToken. It is pegged to the US dollar and has a market capitalization of over $200 million. TUSD is widely used on cryptocurrency exchanges and for DeFi applications.

When comparing these stablecoins, it is important to consider factors such as market capitalization, liquidity, and use cases. USDT and USDC are currently the largest stablecoins in the market and are widely used on cryptocurrency exchanges. BUSD and DAI are also popular stablecoins, but are more geared towards DeFi applications. TUSD is a smaller stablecoin but is still widely used on exchanges and for DeFi.

Comparison of the stablecoins based on factors such as market capitalization, liquidity, and use cases

In this section, we will compare the top stablecoins in terms of market capitalization, liquidity, and use cases.

• Market capitalization refers to the total value of a coin’s outstanding supply and can be used to determine a coin’s overall popularity and adoption.
• Liquidity refers to the ease with which a coin can be bought or sold on the market, and is an important factor for traders and investors.
• Use cases refer to the specific functions or applications that a stablecoin is designed to serve, such as cross-border payments or lending.

1. USDT (Tether) is currently the largest stablecoin by market capitalization, with a market cap of over $40 billion. It is also highly liquid, with high trading volume on major exchanges. USDT is mainly used as a trading pair on cryptocurrency exchanges and for remittances.
2. USDC (USD Coin) is another popular stablecoin with a market capitalization of over $5 billion. USDC is issued by Circle, a company that is backed by major investors such as Goldman Sachs. USDC is mainly used for remittances, cross-border payments, and lending.
3. BUSD (Binance USD) is a stablecoin issued by the cryptocurrency exchange Binance, with a market capitalization of over $2 billion. BUSD is mainly used for trading on Binance and its partner platforms.
4. DAI (Dai) is a decentralized stablecoin that is pegged to the US dollar, with a market capitalization of over $800 million. DAI is mainly used for lending and borrowing on decentralized platforms such as MakerDAO.
5. TUSD (TrueUSD) is another popular stablecoin with a market capitalization of over $600 million. TUSD is mainly used for remittances, cross-border payments, and lending.

Which stablecoin is better for different types of transactions or investment strategies?

In this section, we will discuss which stablecoin is better for different types of transactions or investment strategies.

• USDT is best for traders and investors who value high liquidity and a wide range of trading pairs. It is also widely accepted by major exchanges, making it easy to buy or sell.
• USDC is best for users who value the backing of a trusted institution and the added security that comes with it. It is also useful for remittances, cross-border payments, and lending.
• BUSD is best for users who want to trade on Binance and its partner platforms.
• DAI is best for users who want to lend or borrow on decentralized platforms, as well as those who value the decentralized nature of the coin.
• TUSD is best for users who want to use a stablecoin for remittances, cross-border payments, and lending.

It’s worth noting that the best stablecoin for a user will depend on their specific use case and investment strategy, so it is important to do your own research and choose the stablecoin that best fits your needs.

FAQS

How are stablecoins different from other cryptocurrencies?

Stablecoins are different from other cryptocurrencies in that they are pegged to a stable asset, such as the US dollar, which means that their value does not fluctuate as much as other cryptocurrencies. This makes stablecoins a more reliable store of value and a better option for transactions or investments where price stability is important.

How do stablecoins maintain their price stability?

Stablecoins maintain their price stability through a process called “peg,” where they are backed by a reserve of assets, such as US dollars or gold, that is held in a smart contract. When the value of the stablecoin fluctuates, the smart contract automatically adjusts the supply of the stablecoin to keep the price stable.

How can stablecoins be used?

Stablecoins can be used for a variety of purposes, such as transactions, investments, and as collateral for decentralized finance (DeFi) applications. They can also be used for borderless transactions and remittances, which can help to lower transaction costs and increase financial inclusion for people in countries with weak financial systems.

How can I buy stablecoins?

You can buy stablecoins on a cryptocurrency exchange, such as Binance, Coinbase, or Kraken, using a variety of methods, including credit card, bank transfer, or other cryptocurrencies. It’s worth noting that each exchange has its own fees and regulations, so it’s recommended to research and compare different options before buying.

What are the risks of using stablecoins?

As with any investment, there are risks associated with using stablecoins. Some of these risks include the risk of hacking, fraud, or regulatory changes that could affect the value of the stablecoin. Additionally, stablecoins are not FDIC insured and are not backed by the government, which means that if the issuing company goes bankrupt, you could lose your investment. It’s always recommended to do a thorough research before investing in any crypto asset.

Stablecoins and Central Bank Digital Currencies (CBDCs): What are the Major Differences?

Stablecoins and Central Bank Digital Currencies (CBDCs) are both digital forms of currency, but there are some key differences between the two.

1. Issuer: Stablecoins are issued by private companies or organizations, whereas CBDCs are issued by a country’s central bank.
2. Backing: Stablecoins are typically backed by a reserve of assets, such as fiat currency or other cryptocurrencies, whereas CBDCs are backed by the full faith and credit of the issuing country’s central bank.
3. Purpose: The main purpose of stablecoins is to provide a more stable and reliable form of digital currency for use in transactions and as an investment. In contrast, CBDCs are intended to be a digital form of the country’s existing fiat currency, which can be used for transactions in the same way as physical cash.
4. Accessibility: Stablecoins are generally accessible to anyone with an internet connection, whereas CBDCs may have more restricted access and require identification or other verification to obtain.
5. Regulation: Stablecoins are largely unregulated and operate in a decentralized manner, whereas CBDCs are subject to government regulations and oversight.
6. Security: Because of being backed by governments, CBDCs may have an edge in terms of security as compared to stablecoins which are backed by private entities.

In summary, stablecoins and CBDCs share some similarities, but they also have distinct differences in terms of issuer, backing, purpose, accessibility, regulation, and security.

Bitcoin vs Stablecoins: How are they different?

Bitcoin and stablecoins have different characteristics and uses, with Bitcoin primarily used as a store of value and speculative investment, and stablecoins primarily used for transactions and as a medium of exchange.

Price volatility

Bitcoin is known for its high price volatility, with its value fluctuating greatly over short periods of time. In contrast, stablecoins are designed to maintain a stable value, typically pegged to a fiat currency such as the US dollar.

Purpose

Bitcoin is primarily used as a digital store of value and a speculative investment, while stablecoins are primarily used for transactions and as a medium of exchange.

Backing

Bitcoin is not backed by any physical assets or government guarantees, whereas stablecoins are typically backed by a reserve of assets such as fiat currency or other cryptocurrencies.

Decentralization

Bitcoin is a decentralized currency that operates on a decentralized blockchain network, while stablecoins can be centralized or decentralized depending on the issuer and their underlying blockchain.

Regulation

Bitcoin is largely unregulated, while stablecoins are subject to varying degrees of government regulation depending on their issuer and jurisdiction.

Security

Bitcoin is known for its security and immutability. However, Stablecoins have a risk of hacking or other forms of theft and may have a central point of failure.

Conclusion

Summary of the article

In this article, we discussed what stablecoins are and provided an overview of the best stablecoins in 2023. We compared the top stablecoins in terms of market capitalization, liquidity, and use cases, and discussed which stablecoin is better for different types of transactions or investment strategies.

Final thoughts on the future of stablecoins

The stablecoin market is rapidly evolving and growing, with new stablecoins being introduced and existing ones improving their technology and expanding their use cases.

The future of stablecoins looks promising, as they are becoming increasingly popular and adopted in various industries, including finance, remittances, and e-commerce.

Stablecoins are also being used for decentralized finance (DeFi) applications, such as lending and borrowing, which is driving innovation and growth in the DeFi space.

As the stablecoin market matures, it is likely that we will see more regulation and oversight of stablecoins, which will further increase their credibility and adoption.

The future of stablecoins is exciting, and it will be interesting to see how they continue to shape and change the world of finance and beyond.

It’s also worth mentioning that as the crypto market is highly volatile and the technology is constantly evolving, the mentioned stablecoins might not have the same features, market capitalization and liquidity in future. It’s always recommended to do a thorough research before investing in any crypto asset.