Published: September 17th, 2021
Stablecoins just keep coming. While they seem to drive many of the crypto industry’s current controversies, the appetite for non-volatile digital assets is stronger than ever.
Prices for leaders like Circle and Tether keep rising while new entrants like oneFIL, Fei, and Rai pull significant investor interest. Russia’s largest retail bank Sberbank plans to launch a stablecoin, as does the government of Bitcoin-friendly El Salvador.
What makes them so appealing? In a word, safety. They offer investors a vehicle for entering the cryptocurrency market without the sometimes shocking volatility of an asset like Bitcoin. Stablecoins are often used as a bridging asset to buy into and out of other cryptos.
Up till now, the battle for stablecoin supremacy has primarily been about two competitors, Tether and Circle. But as other players crowd in, how should crypto traders assess these assets?
As the name indicates, a stablecoin is a cryptocurrency designed for stability. Its value is typically pegged to the value of a central bank-issued fiat like the US dollar. The category doesn’t exactly boast any household names just yet, but USDC, DAI, and BUSD are amongst the biggest by market cap.
Top of that list is Tether. It’s arguably the best-known of the bunch, managing to gain both fame and infamy. The company initially claimed that Tethers were 100 per cent backed by greenbacks, but now says it’s also backed by commercial paper and other assets.
A certain vagueness about how it calculates its value has made Tether one of the most controversial coins in all of crypto. There are still lingering questions about how Tether is backed, along with regulator concerns that they’ve been used to inflate the price of Bitcoin.
Let’s take a closer look at the leading stablecoin contenders.
Tether has the unique distinction of being the most frequently traded asset in the entire crypto ecosystem, driving even more transaction volume than Bitcoin.
Numbers from CoinGecko had Tether’s 24-hour trading volume at USD 73 billion at the time of writing, double Bitcoin’s volume of USD 34 billion.
The company has long said that its Tether stablecoins are redeemable for US dollars. On paper, at least, that allows Tethers to be a safe vehicle for buying other, more volatile coins. It also has utility as a reliable store of value for investors who want to park their funds while a volatile trading session passes.
Tether’s typically-high 24-hour trading volume attests to the trust Tether traders have bestowed on it, the company says. But trust has become a serious issue for the company.
Back in May, Tether published a breakdown of its reserves, revealing that only 3 per cent comprised US dollars, a somewhat smaller figure than the ‘100 per cent’ touted in its marketing literature.
In an announcement made following the release, Tether’s CEO said focusing solely on cash was ‘misleading’.
That did little to satisfy Tether’s critics, who also said the company was artificially propping up Bitcoin’s price since any investor attempting to sell their Tethers would quickly find the money pot empty.
Those reputational issues have created an opportunity for competitor Circle, the company behind stablecoin USDC.
Circle is one of the oldest names in the crypto industry. Founded in 2013, it co-created the USDC stablecoin in 2018 in partnership with Coinbase.
After years of slow but steady growth, this year, Circle shifted into a higher gear. In May, it partnered with the FTX crypto derivatives exchange to strengthen support for USDC. In July, the company announced it was going public via a reverse takeover manoeuvre.
Then in August, CEO Jeremy Allaire told the press that the company was working toward becoming a licensed reserve bank. That would subject the business to a steep list of new regulatory requirements. Still, some analysts believe that if Circle can pull it off, it would set the stage for surpassing Tether as the top stablecoin in the cryptocurrency industry.
Like Tether, Circle has reputational issues to manage.
The reserve bank plan came after a report revealed that USDC isn’t fully backed by dollars. Instead, its reserves consist of cash, corporate bonds, and commercial paper. This inevitably led to accusations that USDC was too inherently risky to be considered a stablecoin.
PAX, the stablecoin of payments tech company Paxos, is an Ethereum-based token that is, once again, purportedly 100 per cent backed by US dollars.
When PayPal told its US customers they’d be able to buy and sell cryptocurrencies on the platform, the payments giant pushed Paxos into the limelight. Instead of creating its own infrastructure for crypto transactions, PayPal engaged Paxos to run things.
Since then, Paxos has gone from strength to strength. In April, it raised USD 300 million in Series D funding, bringing its fundraising total to more than USD 500 million for a USD 2.3 billion valuation.
While Circle and Tether remain the market leaders, new stablecoins have a tendency to pop up wherever there is a strong use case.
Despite a bumpy rollout, Facebook’s Diem stablecoin (formerly called Libra) appears to be approaching the launchpad. This month the social network announced that Novi, the stablecoin’s wallet, is now 'market-ready.'
Filecoin’s recently launched oneFIL stablecoin gives the storage company’s customers access to discounts and incentives within the Filecoin ecosystem.
Meanwhile, El Salvador, the first country to make cryptocurrency a form of legal tender, has plans to create a central bank-backed stablecoin to facilitate its recognition of Bitcoin as a universal form of accepted payment.
Press reports say it will be a digital version of the Salvadoran colones national currency. That means it means yet another stablecoin launch is in the offing, one with its sights set on an entire nation’s financial system.