Top 5 Ethereum DeFi Stablecoins

Let’s investigate the top 5 stablecoins in 2022.

Stablecoins have become very popular in the cryptocurrency industry. With no wild volatility associated, as with other crypto assets such as Bitcoin, they present a way to stabilise the value of major currencies. This article will present you the 5 biggest stablecoins on Ethereum, so you have a deeper knowledge of this exciting and innovative industry.

What are stablecoins?

Stablecoins are cryptocurrencies created to decrease the volatility of the coin’s price relative to some “stable” asset or collection of assets. A stablecoin can be pegged to a currency or exchange-traded commodities.

Stablecoins vary by the underlying asset to which they are attached and can be divided into Crypto, Fiat, or Asset-backed stablecoins. As you may know, stablecoins’ prices are often pegged at a one-to-one ratio to a stable asset such as the U.S. dollar or Gold, which is held in reserve as collateral.

In this way, stablecoins have been heavily utilized in the growing Ethereum DeFi movement to perform a number of key functions and it is worth knowing the major players in the space.

What are the top 5 Ethereum DeFi stablecoins?

1. Tether

Tether (USDT) is a stablecoin pegged to the US Dollar and was the first stablecoin to be created. It is the most popular stablecoin used in the dapp ecosystem and is the largest stablecoin by circulation and market capitalization. 

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The USDT peg is maintained via a one-to-one collateral ratio. Tether Limited claims that every USDT in circulation is 100% backed by actual fiat in their reserves. Tether published their balances in their Transparency page and acts as a third-party custodian for the fiat currencies backing USDT. 

2. USD Coin

USD Coin (USDC) represents a major breakthrough in how we use money. Digital dollars work like other digital content — they move at the speed of the internet, can be exchanged in the same way we share content and are cheaper and more secure than existing payment systems.

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USDC is issued by regulated financial institutions and backed by fully reserved assets, and redeemable on a 1:1 basis for US dollars. USDC is governed by Centre, a membership-based consortium that sets technical, policy, and financial standards for stablecoins.

3. Binance USD

Binance USD (BUSD) is a 1:1 USD-backed stable coin issued by Binance (in partnership with Paxos). Approved and regulated by the New York State Department of Financial Services (NYDFS), The BUSD Monthly Audit Report can be viewed from the official website.

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Binance USD is only the latest stablecoin whose reserves are being held by Paxos. The company, which was the first crypto firm to receive a trusted charter from NYDFS in 2015 (as the itBit Trust Company), now custodies the dollar reserves for its own Paxos Standard stablecoin and Huobi’s HUSD token.

4. Dai

MakerDAO is the protocol behind the stable coin DAI  and arguably the leader in the current DeFi surge. DAI is a cryptocurrency that maintains a 1:1 peg to the US Dollar. For ease, think of 1 DAI as $1 with each DAI backed by Ethereum instead of a 3rd party. Ethereum’s volatile price means that interesting challenges arise when trying to maintain the peg.

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So in essence, MakerDAO is like a credit facility that issues loans with a certain interest rate. If the interest rate (stability fee) is low, people are encouraged to borrow more (lock up more ETH). If the interest rate is high, the cost of capital is high making it less attractive to borrow.

5. FRAX

The world’s first fractional stablecoin, FRAX is open-source, permissionless, and entirely on-chain – currently implemented on 12 chains and on Ethereum.

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As you can read on the Frax ecosystem official website: “The Frax Protocol introduced the world to the concept of a cryptocurrency being partially backed by collateral and partially stabilized algorithmically.“

Keep learning about stablecoins with DappRadar

We are positive the stablecoin space will grow exponentially over the coming months and years as other dapp projects both inside the DeFi ecosystem and within other verticals look to provide economic stability within their respective ecosystems.

As always we will continue to update and refresh the list of top 5 stablecoins. Make sure to bookmark DappRadar and sign up for our newsletter below to receive updates directly to your inbox.

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The above does not constitute investment advice. The information given here is purely for informational purposes only. Please exercise due diligence and do your own research.