Since the beginning of the pandemic, the demand for establishments has skyrocketed by 70% and its cumulative market cap now exceeds $ 10 billion. Stablecoins are attractive because they allow investors to hedge their risks and get a good return on investment at the same time. Deposits in stablecoins in US dollars can yield 10% and more, but which currency offers the best balance between security and profit?
A stablecoin is a cryptocurrency whose price is tied to a stable asset, usually the US dollar. Most stablecoins are backed by something - be it dollars in the issuer's accounts or other cryptocurrencies.
Stablecoins use a variety of price stabilization mechanisms, and their price doesn't really remain unchanged. Rather, it fluctuates in a small range around the target value - from about $ 0.95 to $ 1.05.
What to look at when analyzing stablecoins?
One would think that since all dollar peg stamen coins have the same price, there is no difference in which one to buy. However, they do differ - a lot - by two key criteria:
1) Centralized vs. decentralized
In the first case, the issuer retains full control of the “printing” of new currencies and the storage of reserve assets (collateral). Before buying centralized stablecoins, be sure to read the user agreement: the issuer can put limitations on the use of the currency to avoid problems with regulators.
In the case of decentralized stablecoins, it is a smart contract that controls the issue and the guarantee. The coin does not need to be supervised by any company and can work successfully even its creators abandon the project. Users can always check the amount of the collateral locked in the smart contract. This makes decentralized stablecoins extremely transparent.
2) Available investment products
Stakes can be deposited with an interest in three types of platforms:
- Crypto exchanges (Binance, Waves.Exchange, Poloniex)
- Centralized loan platforms (BlockFi, Celsius, Nexo).
- Decentralized platforms and applications (Compound.Finance, dYdX).
Each platform has a different list of supported currencies, and some stablecoins are easier to deposit than others. For example, there are not many offers for TUSD and BUSD.
Now let's look at the top 7 dollar stablecoins that offer good interest rates.
1) USDT (Tether)
Type: centralized
The world's largest stablecoin by market capitalization (about $ 8.8 billion at the time of writing), issued by Hong Kong-based Tether Limited.
It is important to know: approximately 75% of the supply is backed by fiat dollars, and the remaining 25% by various lines of credit issued by Tether to its partners. This was revealed in 2019, when Tether found itself in the midst of a scandal: it turned out that the issuer transferred $ 700 million from reserve accounts to its co-founder Bitfinex. Due to the opacity of its collateral reserves, the USDT is unpopular among decentralization enthusiasts.
Maximum interest rate: 8.69% (Red Celsius, centralized)
2) USDC (USD currency)
Type: centralized
In June 2020, the market capitalization exceeded $ 720 million. The issuer is the Center consortium, formed by the company Circle and the COINBASE exchange.
It is important to know that the company is registered in the United States as a Money Transmitter and regulated in accordance with United States law. For this reason, the user agreement contains numerous limitations. For example, USDC cannot be used on gambling sites, as well as in territories under US embargo, such as Pakistan and Sudan.
At the same time, USDC is the most popular cryptocurrency in the DeFi (decentralized finance) industry, and can be deposited on most decentralized lending platforms. You can check the current rates here.
Maximum interest rate: 13.39% (Nuo, decentralized)
3) USDN (USD Neutrino)
Type: decentralized
Neutrino is an algorithmic stabilizer pegged to the dollar but fully backed by waves. This is the first stablecoin issued on the Waves blockchain - one of the fastest in the industry with an average transaction confirmation time of just 3 seconds. The coin was introduced by the Waves.Exchange team.
It's important to know: The USDN is the only stable that fully supports the decentralized stake. Unlike loans, where invested funds are issued to other users as loans, staked coins are pinned on a smart contract to help keep the chain locked. Stake rewards in WAVES are generated daily using the LpoS (Leased Proof-of-Stake) algorithm and are automatically converted into USDN. The entire procedure is completely transparent.
Maximum interest rate: up to 20% (Waves.Exchange, Neutrino dApp - decentralized; KuCoin, centralized). The average return on investment can vary between 8% and 15% and more depending on the part of the USDN offer that is at stake, as well as the price of WAVES.
Waves.Exchange also has other advantages, such as the absence of commissions and the USDN fiat purchase for betting with bank cards. The exchange also offers the ability to destabilize at any time without penalty charges and allows users to receive a return on investment of up to 8-15% per year on their bets.
4) PAX (Paxos)
Type: centralized
PAX was the first regulated stabilizer for the USD. It is also positioned as the most liquid in terms of the number of exchanges where it is listed. The issuer publishes monthly warranty certification reports.
It is important to know: As a way to increase its market share, Paxos focused on simplifying the redemption process. Paxos wallets have a built-in exchange that allows users to convert their PAX into USD fiat automatically in just a few minutes. To do this, one needs to register and be verified on the Paxos Standard platform.
Maximum interest rate: 8.6% (Blockfi, centralized)
5) DAI (Multicolateral DAI)
Type: decentralized
This is the established one used by the largest manufacturer of decentralized loan protocols. The DAI is an ERC20 token on the Ethereum blockchain. The total amount of funds blocked in the Maker smart contract exceeded $ 520 million in June 2020.
It is important to know that most DAI loans are taken by margin traders. The process is fully automated: the borrower deposits a guarantee in another cryptocurrency (ETH, BAT, USDC, WBTC) at the rate of 150% of the loan amount.
If the value of the guarantee decreases or the borrower does not pay, the guarantee is liquidated (sold). Thus, the risk to lenders is extremely low. However, the way the Maker protocol works is very complicated, making the AID a less-than-optimal option for beginning crypto investors.
Maximum interest rate: 2.96% (Nuo, decentralized)
6) TUSD (True USD)
Type: centralized
TUSD is a fully regulated ERC20 stabilizer that is 100% backed by fiat dollars. The issuer is the TrustToken platform.
It is important to know: the guarantee in dollars is stored in deposit accounts in associated banks, so that the issuer does not have access to the reserves. This makes TUSD different from USDT, whose Tether issuer may have reserves.
Warranty accounts are regularly audited, although the latest published reports date back to June 2019. In order to redeem TUSD for a fiat dollar, one has to pass a KYC.
Maximum interest rate: 8.69% (Celsius, centralized)
7) GUSD (Gemini USD)
Type: centralized
The issuer is Gemini Trust Company, LLC, which belongs to the famous Winklevoss twins, known to many by the movie Social Network. The GUSD is issued on the Ethereum blockchain and is positioned as a fully regulated and audited stable. This means that the regulator's risks are minimal.
It's important to know: The company came under fire in 2019, when the accounts of various OTC desktops were suddenly closed when they tried to redeem large amounts of GUSD. Geminin promotes stablecoin as freely redeemable by fiat, but at the same time seemingly tries to limit redemption rates so as not to harm the currency market capitalization. Interestingly, the GUSD has yet to appear on Binance's list.
Maximum interest rate: 8.6% (Blockfi, centralized)
As we have seen, stablecoins set in US dollars differ enormously both in terms of their return on investment and in the degree of centralization and transparency. In particular, when investing in centralized stablecoins, it must be remembered that price stability depends above all on investor confidence in the issuing entity.
The biggest advantage of stablecoins is the high interest that loans and betting accounts produce - up to 20% for the USD Neutrino. This makes them a very interesting alternative to volatile cryptocurrencies, like Bitcoin.
