Robert Steinadler, 23 days ago
Stablecoins are a vital part of the broader DeFi economy. Many assets on decentralized exchanges are denominated in “stables”. This is a trend that has set in three years ago. Before that time most crypto assets were either denominated in BTC or ETH. That is not the only reason why stablecoins have become important and serve as a pillar in the crypto economy.
What are stablecoins? What do USDT, USDC and EUROC have in common, and what makes them distinct from each other? In this article, we are going to explore three of the most significant stablecoins that are available on the market.
A stablecoin represents the value of a fiat currency, such as the US-Dollar, Euro, or British Pound. In principle, each token is pegged to the native fiat currency in question at a 1:1 ratio. The most important part is how this peg is kept since there is no connection between stablecoins and central banks. Instead, they are issued either by companies or through a decentralized protocol.
Companies use cash or other assets to ensure the stable peg of the issued tokens. Such assets can include but are not limited to commercial papers, loans, bonds, equity as well as cryptocurrencies. Decentralized protocols, on the other hand, keep the peg stable through collateral mainly consisting of digital assets. As some of you may already know, Terra (LUNA) and the stablecoin UST kept the peg stable using digital assets, and it failed. It is for this reason that most decentralized stablecoins that are still existing are designed to be overcollateralized. Meaning that a multiple of the Dollar value has to be deposited to mint new stablecoins.
If you like to know more general facts about stablecoins and what type of use cases they serve, we have already got you covered and encourage you to read more about them in this article.
USDT is considered to be the mother of all stablecoins and is issued by the company Tether which also holds close ties to Bitfinex. The market cap for USDT is about $64 billion at the time of writing, and it is constantly the third-biggest crypto asset in the world in terms of market cap.
Tether had a troubled history over concerns about how their stablecoins are pegged to the value of the US-Dollar. As a result of a legal dispute in New York, the company had to file transparency reports and still update them to provide necessary information about the assets that are backing the value of USDT.
USDT is not the only product that is offered by Tether. There are also stablecoins available for gold (XAUt) and even the Mexican Peso (MXNT). With USDT being the most successful stablecoin solution it is available on more than one blockchain. It originally started on Ethereum, but is also available on Binance Chain, Tron, Solana, Avalanche, Polygon, Fantom, TomoChain, Aptos, Tezos and many more. It is this high availability that makes USDT so attractive to many investors who are native to different decentralized ecosystems and their financial applications.
USD Coin or USDC is a product developed by a US company called Circle in conjunction with Coinbase and Bitmain. Together, they form a consortium called Centre. USDC is the 5th largest crypto asset with a market cap of $42 billion at the time of writing. The stablecoin had some tailwind due to the legal issues Tether had to face in the past. Many investors felt that it is only prudent to diversify their stablecoin portfolio and opt for a solution apart from USDT.
Centre provides monthly reports created by Grant Thornton LLP with a very similar goal to Tether. USDC is backed by cash or other investments. With its popularity increasing, USDC is available on Ethereum, Solana, Binance Chain, Tron, Avalanche, Polygon, Fantom, TomoChain, Aptos, Tezos and several more blockchains.
EURO Coin or in short EUROC is another product from Circle. Unlike USDT and USDC it is not pegged to the US-Dollar but to the Euro. Stablecoins backed by the Euro are quite rare, and this is reflected by its way smaller market cap of $80 million at the time of writing. With only a few alternatives existing, EUROC could possibly become Europe’s most successful stablecoin.
Since EUROC is still in its infancy, it is only available on Ethereum for now, but according to Circle, the stablecoin will be available on more than one blockchain in the future. Similar to USDC, EUROC can be redeemed with Circle at a 1:1 ratio by business customers, and Grant Thornton issues monthly attestations separate from those for USDC.
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