We’re now living through what feels like a new industrial revolution – only this time, it’s happening online. The global economy and financial systems are moving deeper into the digital world. Paper cash is slowly becoming a thing of the past, replaced by digital money and payment networks built on blockchain technology. Inside these blockchain ecosystems, cryptocurrencies act as the main way to send and receive value. They’re created through complex cryptographic calculations on special hardware – and unlike traditional money, they aren’t tied to any physical resource.
You can trade cryptocurrencies for regular money on exchanges, but that naturally invites speculation. Big investors often manipulate prices, pushing them up or down to profit from market swings. That makes it hard to use crypto as everyday money. Think about it – if Bitcoin or Ethereum might be worth ten times more in a year or two, most people would rather hold onto it than spend it. And when the market drops, many merchants stop accepting crypto altogether to avoid losing value. To fix these problems and stabilize digital payments, stablecoins were created. These coins work on blockchain technology too, but unlike Bitcoin or Monero, they’re designed to keep a steady price.
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What is a Stablecoin: Definition
A stablecoin is basically a bridge between the crypto world and traditional finance. It keeps its value stable by being tied to a real-world asset, like a fiat currency or commodity. That connection helps prevent wild price swings. The main goal of a stablecoin is simple – to make it easier to use digital money for everyday purchases. Ideally, it should work just like regular cash: as a means of payment, a way to measure value, and a reliable store of wealth. To make that possible, a stablecoin needs solid backing that ties blockchain innovation to the stability of real-world economics.
Popular Stablecoins
Over the past four years, more than 50 stable cryptocurrencies have been created, and the number continues to grow. Below are the best-known stablecoins, led by projects with the largest market capitalization.
Binance USD (BUSD)
This stablecoin was issued by the Binance platform with support from Paxos. BUSD is backed by the U.S. dollar. Issuance is overseen by the New York State Department of Financial Services (NYDFS). Officials from this agency conduct regular attestations confirming that fiat reserves match the circulating supply of this stablecoin.
Minting and burning of BUSD is performed by Paxos. A unique operating mechanism allows arbitrage to support BUSD’s price stability.
Tether (USDT)
The USDT stablecoin is pegged to the U.S. dollar. It ranks third on CoinMarketCap, trailing only Bitcoin and Ethereum by market capitalization.
There are 82,796,794,183 USDT in circulation. The project launched back in 2014 as a second-layer token on the Bitcoin blockchain via the Omni platform. Later the name changed to USTether, and then to USDT. The stablecoin expanded beyond Bitcoin to run on Ethereum, EOS, Tron, Algorand, and OMG chains.
TrueUSD
This project was launched by TrustToken. Its creators presented it as “the first stablecoin fully backed by U.S. dollars.” The circulating supply is 1,182,387,589 TUSD. TUSD is issued as an ERC-20 token on Ethereum and as a BEP-2 TUSD token on Binance Chain.
A stable redemption of TrueUSD for U.S. dollars is supported through partnerships with banks and financial firms. TrustToken’s backing can be verified in real time.
Pax Dollar (USDP)
PAX is a cryptocurrency from the Paxos trust, a long-time player in financial services, and represents a standalone platform for payments. The company is licensed by the NYDFS to conduct financial operations. Paxos Standard offers the benefits of blockchain-based assets while minimizing price risk. PAX tokens are issued under the ERC-20 standard on Ethereum. The entire supply is fully backed by U.S. dollars. PAX market cap: $946,208,639.
DAI MakerDAO
This token is issued under the ERC-20 standard. Its price is pegged to the USD, but the project has no fiat reserve. DAI stablecoins are backed by ether. The circulating supply is 6,407,044,314 DAI.
MakerDAO is an independent decentralized organization powered by smart contracts on the Ethereum blockchain. Governance is carried out by holders of Maker (MKR) tokens, who are, in essence, the project’s shareholders. The coin ranks 16th on CoinMarketCap with a capitalization of $6.4 billion.
USD Coin (USDC)
This stablecoin is a joint project of Circle, a peer-to-peer payments company, and the Coinbase crypto exchange. Other crypto companies can join the consortium.
Circle and Coinbase ensured regulatory compliance, paving the way for international expansion. Both projects are also well funded, which increases the stablecoin’s reliability. USDC market cap: $49,182,448,439. Its primary base chain is Ethereum, with versions on Solana, Binance Chain, Algorand, and Fantom.
TerraUSD (UST)
TerraUSD (UST) is a decentralized, algorithmic stablecoin on the Terra blockchain. Thanks to the Dropship protocol, TerraUSD can bridge ecosystems. Dropship integrates TerraUSD into numerous DeFi and DEX platforms and moves assets across chains.
The price of TerraUSD is determined by the supply and demand for LUNA. In May of this year, the coin’s price collapsed sharply. At present, 1 UST is worth $0.172. The project ranks 35th on CoinMarketCap with a capitalization of $1.9 billion.
Fei USD (FEI)
Fei is an algorithmic stablecoin of a DeFi project. It offers a technological solution that seeks a middle ground between a strictly decentralized over-collateralized stablecoin and a centralized custodial stablecoin.
The Fei protocol operates on two cryptoassets: the FEI stablecoin and the TRIBE governance token. Circulating supply of Fei is 424,996,178, with a market capitalization of $422,123,037. The project ranks 94th on coinmarketcap.com; as of 13 May 2022, 1 FEI trades at $0.9933.
Neutrino USD (USDN)
Neutrino USD (USDN) is an algorithmically crypto-collateralized stablecoin pegged to the U.S. dollar. All operations related to USDN – issuance, collateralization, staking, and rewards – are transparent and governed by a smart contract. The token runs on Ethereum and Binance Smart Chain. The project ranks 64th on coinmarketcap.com, with a current market cap of $857,217,278 and a circulating supply of 915,376,145 USDN. As of 13 May 2022, 1 USDN trades at $0.935.
These cryptocurrencies are in CoinMarketCap’s top-100 and are therefore considered the most reliable. The listed stablecoins trade on many crypto exchanges, including Binance, Huobi Global, OKX, and Phemex.
How Stablecoins Work and Their Types
Stablecoins can be backed by:
- Other cryptocurrencies
- Fiat money
- Commodities, such as oil or precious metals
Some stablecoins, however, aren’t supported by physical reserves. Instead, their stability is managed by a central organization that guarantees a fixed value. While private companies issue most of these coins, an increasing number of governments are now exploring their own versions – digital forms of national currencies. China is leading this transformation, while other countries are watching its progress and testing similar ideas. A complete transition away from paper money isn’t realistic yet, but it’s clearly the direction the world is heading.
The real advantage of stablecoins is their resilience to the extreme volatility common in the crypto market. Since Bitcoin and most altcoins tend to move together, investors often convert their holdings into stablecoins to protect themselves during downturns. When properly managed and backed by a trustworthy redemption system, stablecoins rarely experience dramatic price changes because market arbitrage naturally keeps their value in check. However, they’re still not entirely risk-free – their stability depends heavily on the quality and security of the assets supporting them.
Uncollateralized Stablecoins
The idea of creating a decentralized stablecoin system based on seigniorage (profit from money issuance) was first proposed by economist Robert Sams. Unlike asset-backed tokens, these stablecoins rely on smart contracts to maintain balance and decentralization.
When demand and price rise, the protocol automatically mints more tokens to bring the rate down. Conversely, when supply exceeds demand, coins are burned or removed from circulation. Such algorithmic stablecoins operate without relying on fiat reserves or other blockchain networks – but they are also the least stable and most prone to collapse if investor interest fades.
Collateralized by Another Digital Currency
To issue a stablecoin backed by another cryptocurrency, a company needs to hold double the amount of the base asset in reserve. For example, if the stablecoin is tied to the value of Ether, each stablecoin would require collateral of 2 ETH.
This way, the stablecoin’s price is supported when the base cryptocurrency falls. Nevertheless, if the value of the collateral drops critically, the project sinks and self-liquidates.
Collateralized by Fiat Money
The most widely adopted stablecoins today are those backed by fiat currencies. Pegging tokens to the U.S. dollar quickly became the standard, beginning with Tether (USDT), launched in 2015. Since then, similar projects have emerged, including stablecoins tied to the euro and the Japanese yen. Australia has explored issuing a stablecoin backed by its local dollar, while Facebook’s (now Meta’s) controversial Libra project – pegged to the U.S. dollar – sparked widespread concern among regulators and bankers worldwide.
Advantages of fiat-backed digital coins
- Stability – the exchange rate typically fluctuates no more than 2–3%
- Convenient pricing – each stablecoin equals one unit of the respective national currency
Disadvantages of blockchain analogs of fiat funds
- Absolute centralization – the reserves are held by a single custodian on whom the project’s viability fully depends
- Dependence on external regulators – a cryptocurrency pegged to the dollar or other fiat automatically draws heightened scrutiny from authorities
- Loss of value – inflation of the national currency is reflected in the stablecoin pegged to it
At first glance, backing in the form of a certain amount of U.S. dollars seems very reliable. But note that “fiat money” refers to means of payment with no intrinsic value, including banknotes not backed by gold or other precious metals.
The foundation of any traditional currency is its legal framework. A state mandates that people within its territory accept banknotes at face value. Converting long-term capital into fiat-backed stablecoins is not a great idea; they are designed for day-to-day settlements.
Where to Buy a Stablecoin
You can buy stable digital coins for regular crypto or fiat on a number of trading platforms. One of the largest cryptocurrency exchange services is Binance.
On the spot market you can buy BUSD, USDT, TUSD, USDC, DAI, and USDP. Binance also has a P2P section where you can buy BUSD and USDT for rubles directly from other traders.
To become a Binance customer, you need to register and pass identity verification. More detailed information about Binance is available in thematic reviews on our website.
Outlook
The future of stablecoins depends on the development of blockchain technologies. This applies not only to coins backed by traditional digital assets, but to the crypto industry as a whole. For now, the most successful are the cryptocurrencies pegged to fiat, and in the future they may fully dominate everyday transactions.
Coins backed by gold, silver, and other precious metals have already been issued. Venezuela’s government has launched the national cryptocurrency project El Petro, and China’s central bank is moving in the same direction.
Conclusion
While stablecoins are unlikely to replace fully decentralized cryptocurrencies, they will play a crucial role during the global transition toward digital finance. In the near future, almost anything could serve as collateral – from labor and services to data and digital projects. As the cyber economy expands, everything we know is gradually becoming tokenized and digitized.
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