The rise of cryptocurrencies has allowed investors to perform faster transactions and with minimal fees. However, a Volatile market makes it challenging to use crypto as an accepted payment gateway. Stablecoins solve this problem, providing protection against crypto volatility. They are designed to maintain a fixed value while tied to an underlying asset, like fiat currency. Recently, stablecoins have become an increasingly popular avenue for investors and companies interested in cryptocurrencies. Unlike other coins that fluctuate with the asset price, stablecoins are pegged to a less volatile asset. In this article, we discuss the six safest and top stablecoins you can invest in 2022.
6 Best Stablecoins List To Invest In 2022
- Binance USD (BUSD) – Medium of exchange
- Tether (USDT) – Editor’s Choice
- True USD (TUSD) – The most liquidity
- Paxos Standard (PAX) – Transacting with blockchain
- USD Coin (USDC) – Highest crypto trading volume
- TerraUSD UST – High transparency
Types of Stablecoins
- Commodity-backed stablecoins: They are stabilized with hard assets such as gold, real estate, and other precious metals.
- Fiat-backed stablecoins: These stablecoins keep a reserve of the traditional currency as collateral. A central authority created the stablecoin while the reserve for the currency is administered through an independent custodian.
- Crypto-backed stablecoins: They are backed by crypto and maintain an overcollateralized position.
- Seigniorage-style stablecoins: These are governed through and backed by an algorithm rather than real-world assets or currency.
Binance USD (BUSD)
- It’s a medium of exchange
- High level of customer protection
- No transaction fees
- Requires third-party audit
- Less vulnerable to hacks
- Medium of exchange
- It bridges the gap between cryptocurrencies and fiat.
True USD (TUSD)
- Higher interest rates
- Low transaction costs
- High data transparency
- Simple and relatively easy to understand
Paxos Standard (PAX)
- No translation fees
- Available on all exchanges
- Less return on investment
USD Coin (USDC)
- Backed by fiat
- No translation fees
- High transparent funding
- High speed and reliability
- Has scalable monetary policy
- Fast, secure, and liquid payment method
- It uses a Schelling point scheme
- IOU systems support a vast ecosystem
Best Stablecoins To Invest In 2022 – Top 6 Crypto Stablecoins Ranked
BUSD is a regulated stablecoin fully backed by US dollars. It was created through a partnership between Binance Exchange and the Paxos Trust Company. This is an excellent tool to hedge against market volatility and enter markets without buying into the ethereum network. It is designed to maintain a 1:1 parity with the US dollar and maintains value for a long time. You can take advantage of the benefits offered by blockchain technologies on the settings page without the massive price fluctuations. You can also use this stablecoin as a method of payment in the global crypto space.
Each tether is backed by one US dollar for a token issued. Each US dollar supports tether, providing a 1:1 conversion. Hence, you can redeem each coin for one US dollar. The circulating supply of USDT tokens grows or shrinks based on the money held in bank accounts. It provides security for the investors by protecting them from price crashes due to high volatility. Also, the involved parties perform regular data auditing and have high transparency funding. A third party is responsible for auditing the firm to ensure the correct amount of stablecoins enters circulation.
This is a stable cryptocurrency based on the TruskToken platform. It focuses on building a stable coin that can be trusted and quickly adopted by traders. The US dollar holdings of true USD are distributed in various bank accounts belonging to different trust companies. Every involved party publishes the collateralized holdings daily and conducts monthly audits. The tokens use multiple escrow accounts to lower the counterparty risk and provide legal protection against theft.
PAX is a well-known fiat-collateralized stablecoin collateralized by fiat money held in actual banks. It was created by Paxos, a New York regulated financial institution. The Paxos Standard tokens are collateralized 1:1 by USD held in Paxos-owned US bank accounts. This stablecoin is approved by Wall Street regulators, making it a secure stablecoin to use. It improved the more prominent financial ecosystem by getting a frictionless global network to mobilize a digital asset with more speed and flexibility.
This is one of the few stablecoins, alongside a Gemini dollar, backed by US dollars held in FDIC-insured US banks. It is regulated by the New York State Department of Financial Services to ensure utmost customer protection. It uses Solana and Algorand blockchains. USD coins are popular because they have better transparency, auditing, and high reliability. It is a proper way to trade an asset based on the monthly market supply of tokens and underlying US dollars.
Tera has grown over 2,000% in the past year, attesting to its popularity. It is a decentralized stablecoin running on Ethereum while attempting to maintain a value of $1.00. This stablecoin is known as an algorithmic stablecoin since the cost of minting is equal to the face value of the minted stablecoins. UST is not backed by US dollars in a bank, unlike other centralized stablecoins. Instead, you must burn $1.00 worth of TerraUSD’s reserve asset (LUNA) to mint one TerraUSD.
What is Stablecoin?
Stablecoin is a form of cryptocurrency with a stable price and can be measured in terms of fiat currency. Its market value is pegged to the value of a less volatile external asset like fiat currencies. Stablecoins retain the same worth as their underlying stable asset instead of going through dramatic price swings. Since they are expressed in dollars, you can maximize your chance of protection from market fluctuations.
Trade or Invest in Cryptocurrency Financial Services
Cryptocurrency exchanges are highly volatile, with price fluctuations that make them unstable. However, stablecoins are an excellent option for less volatile crypto exchanges. Most stablecoins provide a stable unit of worth on decentralized exchanges and offer a private mode of storage. Since reserve assets back them, it keeps the prices stable and not on the same level of volatility as other cryptocurrencies. However, stablecoins aren’t all created equal, and not all stablecoins are 100%t price-stable. Trade the stablecoin tokens by size as they are listed by their market capitalization, and work with an investment advisor for any investment advice.
Advantages vs. Disadvantages
The major advantage of stablecoins is the very low volatility that makes them convenient for real-life payments. Stablecoins are centralized and easier to bridge from fiat to crypto exchanges. They have low fees and secure transactions since fiat-related regulatory processes are involved. You can buy stablecoins directly when not at the peak of a bubble for it to pop on you.
However, stablecoins are pegged to a nation’s currency, which can suffer inflation. They also need third party auditing and trust from an entity to ensure assets are accounted for. Also, stablecoins have a low return on investment, which may not please crypto investors who desire higher returns. They are also regulated similarly to traditional currencies.
Using Stability to Create Profitability
Price instability is one of the biggest obstacles standing in the way of the widespread adoption of cryptocurrencies. You can use stablecoins as a hedge against inflation and create profitability. They have price stability with inflation-resistant fiat currencies. For example, you can generate profitability with stablecoins through lending and staking, where you earn interest payments from borrowers or earn interest by staking. Also, look at price differences at the same time and make exchanges when the prices are lowest. For example, you can exchange stablecoins for ETH and other Ethereum tokens.