Choosing the correct tokens to invest in can be very lucrative, but you must be careful about the market volatility. Stable coins are great if you want to reduce your risk. You should only invest what you are prepared to lose. These tokens maintain a constant value and are therefore suitable for saving or daily transactions. https://www.happhi.com
Image Source: FreeImages
The last few months have been a trying time for the stable coin market. The disastrous launch of the first stable coin, Terra, and its subsequent shutdown left a black mark on what was otherwise an exciting development for the cryptocurrency market. Previously, numerous other stable coins have also collapsed after launching their services to the public. For example, New Zealand-based company Reserve failed in October 2018 and its founders disappeared with millions of investors’ money. In this article we are going to explore what happened with those projects and whether there are any good alternatives to them now.
Stable coins are digital assets that are pegged to a stable asset such as the US dollar. Although cryptocurrencies are a great new asset class, they can be very volatile. This is because their price is largely determined by supply and demand, which is highly volatile. Although cryptocurrencies are great for facilitating a huge number of transactions, few businesses will trust a volatile asset to pay their employees and suppliers. This is where stable coins come in. They allow businesses to use a stable asset while also having the benefits of blockchain. Stable coins are a very important development because they will drive adoption of blockchain and cryptocurrencies by allowing major businesses to accept payment in cryptocurrencies.
Tether was the first stable coin and has been the largest most dominant stable coin by far. Tether’s market capitalization has ranged from $1.5 billion to $2.5 billion USD. Its number one competitor, the USD Coin, has never reached anywhere near those numbers. Tether has had a checkered past and has been plagued by controversy for years. The company has been accused of issuing more tethers than it actually has in the bank and of being insolvent. There have also been rumors of the company’s involvement with the Chinese government. Despite these issues, Tether remains the most dominant stable coin.
As if the public didn’t have enough reasons to distrust Tether, the company was subpoenaed on December 6th by the Commodity Futures Trading Commission (CFTC). The subpoena was issued in response to Tether’s claims that it is backed 1:1 by USD. In a statement, the CFTC said it “is investigating the allegations that tether coins have been improperly used to manipulate the price of Bitcoin and other cryptocurrencies”. This is not the first time the CFTC has investigated Tether. Earlier this year, the CFTC sent a letter to Tether Inc. ordering the company to hand over documents related to its dollar-tethers (USDT) coin. If the CFTC finds that Tether has been issuing more USDTs than they have in assets, they could cause mass panic in the market.
MakerDAO is a decentralized autonomous organization that has managed to keep a low profile throughout this latest stable coin fiasco. Their stable coin, DAI, has been available since October 2017 and has managed to survive being part of the largest market downturn ever. MakerDAO allows anyone to create DAI through collateralizing their ether or other tokens with a smart contract. If the user ever wants to withdraw their DAI, they must pay back the collateral and a fee of 0.50%. This fee can be reduced by putting up more collateral. So why has MakerDAO’s DAI managed to survive when other stable coins failed to stand up to the test of the market? The main reason is the organization’s transparency. Unlike Tether, who has refused to reveal its financials, DAI’s smart contract code is open-source, auditable, and has been proven to work.
Havven has been dubbed the ‘honest’ stable coin after a few failed attempts at creating stable coins. The company has a decentralized collateral token that is backed by a stable coin called the nusd token. The nusd token is pegged to the USD and is managed by autonomous smart contracts. Havven’s decentralized structure allows it to circumvent the pitfalls of centralized exchanges and keep the nusd token stable. Havven has been around since 2017, and despite the general skepticism towards stable coins throughout 2018, it has managed to stay afloat.
USD Coin is a stable coin backed by USD. The project was launched after the demise of Terra. The project was started by ico.org, a company that has been active since the late 1990s. The company is a trusted stable coin issuer, with the majority of its holdings held in a decentralized custody account. USD Coin is an ERC-20 token that is essentially a decentralized dollar. The company’s website describes it as “a dollar on the blockchain”. ico.org has partnered with TrustToken and the Gemini exchange to ensure that its stable coin is truly backed by USD. And yes, that’s right - a stable coin backed by the USD - a government-issued currency. Although it’s possible that government bodies may try to shut down USD Coin in the future, it has a much lower risk of this happening. USD Coin trades at $0.15 USD, a 35% premium to the USD. If you’re looking for a stable coin, there are still plenty of options out there. Don’t get caught up in the FUD surrounding Tether. Instead, look for a coin that has a strong team, transparent governance, clear use case, and low risk of failure. And remember, the goal of a stable coin is to create a digital asset that is predictable and reliable. So don’t fall for the hype and go for the flash in the pan. Instead, go for a coin that is tried and tested.
