The Crypto market is characterized by volatility with frequent radical fluctuations in the price, which can grow unexpectedly high over the night or plunge to zero within seconds. Popular cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and Binance Coin (BNB) have seen a roller coaster ride over the last few months by losing most of the value they gained in the last few years, with investors losing cryptocurrencies worth millions of dollars.
In such gloomy times, stablecoin appears as an array of hope for crypto investors which ensures price stability to some extent. Since stablecoins have become the preferred investment choice for crypto enthusiasts, this rundown will give you an outlook on the best stablecoins in 2022.
What is Stablecoin?
A stablecoin is a cryptocurrency pegged to real-world assets such as a financial instrument, currency, or commodity to be relatively stable. Stablecoin’s value is tied with reserve assets such as the U.S. dollar to keep it from frequent fluctuation. In a highly volatile cryptocurrency market where the price of popular crypto assets such as Bitcoin (BTC), or Ethereum (ETH) remains unstable, stablecoins have emerged as a better alternative suitable for investment.
The price stability of stablecoin comes from reserve assets maintained as collateral to control the coin supply. Stablecoins were introduced to restore investors’ faith by bringing stability to the crypto market so that they can be used as a medium of exchange. Stablecoins are backed by government regulators and financial institutions and comply with the cryptocurrency law of the respective territory.
Types of Stablecoins
A reserve of fiat currencies like the U.S. dollar is maintained by the fiat-collateralized stablecoins in the form of collateral. Commodities such as crude oil or precious metals like gold or silver can also be used as collateral to assure the value of the stablecoin. The popular fiat-collateralized stablecoins are Tether (USDT) and TrueUSD (TUSD), which are attached to U.S. dollar reserves.
The stablecoins backed by other cryptocurrencies come under the category of crypto-collateralized stablecoins. For the volatile nature of cryptocurrency, a huge amount of reserve needs to be kept as collateral which is higher than the value of stablecoin in circulation. To issue cryptocurrency worth $5 million, a reserve of cryptocurrency worth $10 million might be held as collateral.
Unlike fiat and crypto collateralized stablecoins, algorithmic stablecoins may not necessarily maintain a reserve of assets. Algorithmic stablecoins use computer algorithms to control their supply which works as a strategy to stabilize their price. An algorithmic stablecoin list includes TerraUSD (USD), Frax (FRAX), Magic Internet Money (IM), Neutrino (USDN), etc.
Best Stablecoins in 2022
Here are the best stablecoins in 2022 you can pick to begin your crypto journey:
With a market capitalization of $67.95 billion, Tether (USDT) is undisputedly the largest and best stablecoin in 2022. Despite the stablecoin seeing a drastic drop since October 2021, it maintains its position as the number one stablecoin in the market. Tether was launched in 2014 to bring stability to the highly volatile crypto market and ease the problem of convertibility. Since then its market cap has increased thrice.
USD Coin (USDC)
Best known for its integrity and transparency, USD Coin (USDC) has challenged its rival Tether (USDT) in terms of credibility and adoption rate. Launched by Circle Internet Financial Ltd. in 2018, USDC has emerged as one of the best stablecoins in 2022. USDC is pegged to the U.S. dollar on a 1:1 basis, which means every unit of USDC issued is backed up by $1. USDC’s reserves include cash and short-term U.S. Treasury bonds.
Binance USD (BUSD)
The world’s third largest stablecoin by market cap, Binance USD (BUSD) was launched in 2019 as a result of a partnership between Binance and Paxos Trust Co. The stablecoin is supported by the New York State Department of Financial Services. BUSD, with a market cap of $17 billion, has become a preferred choice of professional investors due to its wide range of services.
The Ethereum-based decentralized stablecoin, Dai (DAI) is not backed by any central authority. Tied to the U.S. dollar, the stablecoin maintains a reserve of different cryptocurrencies as collateral to issue cryptocurrencies. It was created by the Maker Foundation in 2017 to act as a stable lending crypto asset for businesses and individuals.
Stablecoins have become quite popular after the recent market crash that left crypto investors on their knees. With stablecoins attached to other stable assets, they can expect relatively better returns and less risk as compared to conventional cryptocurrencies which are known to be highly volatile. As you plan to invest in one of the above-mentioned stablecoins, you can explore more on the list of algorithmic stablecoins to make a smart decision to generate better returns and minimize your losses.