The cryptocurrency market has seen the expansion of different virtual currencies. Some of these digital assets are called stablecoins. You might have heard of them in recent years, as they became a key part of the whole crypto ecosystem, however, do you know the differences among them? Do you know why they are called stablecoins? Do you know the difference between stablecoins and cryptocurrencies?
In this guide, we will share with you all the details about stablecoins and why they are very important for the cryptocurrency market. Moreover, we will go through the most popular stablecoins currently available and why you should know about them before deciding to start investing in digital currencies.
What are Stablecoins?
We are all used to Bitcoin (BTC) and other virtual currencies that have their price fluctuating all the time. Indeed, Bitcoin could move by 20% in just a matter of hours. This is something that could be considered a problem to many. However, there are alternative virtual currencies that can be used in order to avoid these large price fluctuations.
Stablecoins are virtual currencies that have their price tied to a fiat currency. Despite the fact that we know that fiat currencies are inflationary, their price does not fluctuate as much as the price of virtual currencies. Let’s not forget that some of the largest cryptocurrencies have a limited supply and the price works as the only way to regulate the supply and demand.
Stablecoins, instead, have a stable price in fiat terms. For example, 1 USDT/BUSD/DAI/USDC is more or less equal to 1 USD. There might be some slight differences in the price, but it should usually stay close to $1. This allows investors to keep their funds in virtual currencies and enjoy the benefits of digital assets but without having to be exposed to massively large price fluctuations on a daily basis.
In the cryptocurrency market, there are several stablecoins that are currently available to investors that want to manage their digital assets without having to be worried about price fluctuations. But there are some differences among stablecoins. In most cases, stablecoins work with a company that stores the underlying asset (USD) and issues tokens.
The next sections will give you all the details you should know about the largest stable virtual currencies in the cryptocurrency industry.
Tether (USDT) is the largest and most popular stablecoin in the cryptocurrency market. It has been considered the standard stablecoin until a few years ago when other stablecoins appeared in the cryptocurrency market.
This was the first stablecoin to be released to the cryptocurrency market and it became a very important player in recent years. Indeed, when cryptocurrency exchanges struggled to get banking services, Tether was the digital currency used by traders to handle digital currencies. Rather than relying on USD to trade Bitcoin and other digital assets, traders used Tether, which offered stability and also the possibility to trade their favourite virtual currencies.
However, Tether was affected by FUD as the company issuing them iFinex has been accused of not having the necessary USD to back all the USDT in circulation. This situation briefly affected the peg of this stablecoin. Nonetheless, FUD was simply that: FUD. The company behind Tether has already proved they have the necessary funds to back all the USDT in the market.
Nowadays, Tether is the largest stablecoin in the world. According to data shared by Coingecko, USDT is the 4th largest virtual currency in the world after Bitcoin (BTC), Ethereum (ETH) and Binance Coin (BNB). It also has a market valuation of $77 billion. For a short period of time, this virtual currency was able to reach the third spot in the market.
Where to buy Tether?
People might have different reasons to buy Tether. In some countries, USDT is used as an alternative way to get access to a relatively stable currency (like the US Dollar). However, traders need it in order to engage in different market activities and trading platforms. For several years it was difficult to find cryptocurrency exchanges that supported fiat currencies, hence the need to rely on USDT.
Nowadays, most cryptocurrency exchanges offer easy access to USDT. This is indeed one of the most liquid cryptocurrencies in the market. That means that it is possible to handle large amounts of Tether without having to be worried about moving the market or affecting its price.
Additionally, USDT trading volume is highly distributed across different exchanges, which shows how widespread this stablecoin became. Binance, HitBTC and Crypto.com are good platforms through which users can purchase USDT and other virtual currencies. In some cases, users will be able to buy USDT directly with fiat currencies such as USD, BRL, TRY, EUR, ARS, AUD and many others.
USDT would let users get access to a wide range of trading pairs. Indeed, most of the trading pairs in some of the largest exchanges are usually formed by USDT. Hence, if you have USDT, you will be able to get access to a wide variety of coins in the crypto market.
USD Coin (USDC)
Let’s now focus on USD Coin (USDC), the cryptocurrency launched by Circle. This is considered to be a fully-reserved fiat-backed stablecoin. This coin was created a few years ago due to Tether’s FUD and how it affected the credibility of Tether. Indeed, the market realized that there was no alternative to Tether. This is why other stablecoins were created, one of them was USD Coin.
USD Coin was adopted by large institutions and investors that wanted to get access to a secure and FUD-free virtual currency in the market. This is where USD Coin was leading compared to USDT, which was involved in different legal issues. Despite that, USD Coin required many years to reach its current market valuation.
Coinbase Pro was one of the first exchanges that decided to use USD Coin rather than USDT. This cryptocurrency exchange, one of the largest in the world, works with USDC and USD trading pairs. This platform also relies on other fiat currencies to offer solutions to users, but not on USDT.
At the time of writing this article, USDC is the 8th largest cryptocurrency in the world. It has a market capitalization of $42 billion and it is already one of the largest cryptocurrencies after Bitcoin, Ethereum, Binance Coin, Tether, Solana (SOL), Cardano (ADA) and Ripple (XRP). This shows that there has been a clear expansion of USD Coin in recent years. However, it remains far from reaching Tether.
Where to buy USD Coin?
As it happens with Tether, it is possible to buy USD Coin in different cryptocurrency exchanges around the world. However, it is also possible to see that the number of platforms that support USDC is slightly smaller than those exchanges that allow users to trade using Tether.
Binance, Crypto.com, Kraken, KuCoin and Coinbase Pro are some of the cryptocurrency exchanges that would let you buy and handle USDC without issues. We also see that USDC is used on decentralized finance (DeFi) platforms as well, which means that it is present in different DEX such as Uniswap.
However, users that want to buy USDC using DEXs would require additional experience on how to handle digital currencies. Centralized exchanges are usually the best way for investors to buy USDC. DeFi protocols are used by different users that want to get access to additional solutions in the cryptocurrency market.
It would be a good thing to buy USD Coin on those exchanges that have the largest liquidity and on those that have fiat gateways. In this way, it would be possible for you to get access to this virtual currency in a fast and easy way. Indeed, you might be able to buy USDC with USD or other fiat currencies in just a few simple steps.
Binance USD (BUSD)
There are different types of stablecoins. Binance USD is one of the first stablecoins to be released by a cryptocurrency exchange and to reach a large adoption in the cryptocurrency market. One of the interesting things about Binance USD is that this is the stablecoin that is used on the Binance ecosystem.
Despite that, it is used alongside other stablecoins such as USDC, DAI, USDT and others. Binance has also added a large number of trading pairs to this virtual currency, meaning that users would not only be able to use it to trade with other digital currencies but also engage in other activities.
The Binance Smart Chain (BSC) ecosystem has also been growing over the last few years. It has also added support to other stablecoins. Nevertheless, Binance USD is still the most used stablecoin in these DeFi protocols that have been expanding in recent years.
This virtual currency would then be used mostly on the Binance ecosystem that includes the Binance Smart Chain and its cryptocurrency exchange. But there are other initiatives that are already starting to rely on different virtual currencies, including the Binance USD stablecoin.
Right now, Binance USD is one of the top 20 largest cryptocurrencies in the world. This coin is the 16th largest digital currency and it has a market capitalization of $14.85 billion.
Where to buy Binance USD?
The best way to buy Binance USD is the Binance exchange. This cryptocurrency platform would let you buy BUSD using different fiat currencies and through different payment methods. Users can pay with a bank transfer, with debit or credit cards, or they can easily purchase the coins to other users through a P2P platform.
You can also buy Binance USD using other cryptocurrency exchanges such as PancakeSwap, the largest DeFi protocol running on top of the Binance Smart Chain. Buying BUSD using PancakeSwap is more difficult and requires users to handle BSC-20 tokens, which run only on the Binance Smart Chain platform. This is why it might be better for investors to directly use the Binance exchange to get access to this virtual currency.
There are also some other smaller exchanges supporting Binance USD. However, most of the largest crypto trading platforms preferred not to offer trading services for BUSD. This is due to the fact that they are competitors. These smaller exchanges that support Binance USD are not as recognized as Binance, Coinbase or Kraken, hence, it might be very important for investors to make sure that these platforms are secure and had no issues with withdrawals over the last few years.
Finally, we have DAI, another stablecoin that keeps its price tied to the US dollar. This stablecoin is more volatile than the previous ones as it fully relies on a unique algorithmic system that regulates the total supply of DAI tokens.
If demand for DAI drops, then the supply gets reduced. If demand for DAI increases, then DAI supply grows. This method has been successfully implemented over the last few years and it was able to offer solutions to a large number of cryptocurrency investors from all over the world.
Additionally, this massively reduces the trust that exists in third parties. There is no need to trust a financial institution that holds funds on behalf of clients. Indeed, DAI is fully decentralized and relies on pre-defined rules that help DAI keep its price stable and as close to $1 as possible.
Due to this reason, DAI is right now the 23rd largest virtual currency in the world with a total market capitalization of over $9 billion. This is very positive for the virtual currency as it shows that it is also possible to offer stable and reliable solutions without having to trust third parties such as exchanges, banks or other financial institutions.
Where to buy DAI?
At the moment, users can buy DAI in most international exchanges such as Binance, Coinbase, Kraken, KuCoin, Coinex and Bitfinex, among others. This virtual currency is also available on decentralized exchanges, making it possible for users that hold DAI to engage in different DeFi solutions that would let them get access to financial services.
The trading volume of this virtual currency has also been distributed among many different platforms. This shows that there are no exchanges that hold a large supply of DAI or that could eventually manipulate the price. Indeed, there is a large distribution of DAI across different exchanges and ecosystems in the crypto industry.
The best thing for investors that are searching for new opportunities to buy DAI is to use already established exchanges that would be able to offer better solutions to users. For example, you can directly purchase DAI using debit or credit cards or make a bank transfer in seconds.