Top Five Ethereum Defi Stablecoins
Top Five Ethereum Defi Stablecoins
Decentralized Finance, or DeFi, is one of the latest innovations that has emerged out of the blockchain-powered, decentralized economy. Primarily developed on the Ethereum chain, DeFi apps provide users with classical banking services but in a decentralized, borderless way, thus enabling anyone around the world with an internet connection to use those services. The rise of DeFi apps allow users to borrow, lend, invest, trade and make payments effortlessly without the need for a financial institution as an intermediary.
From commerce to payments, to banking and lending, to managing investment and asset tokenization, DeFi technology has begun to reach all major areas of the global financial infrastructure. Today, the DeFi market has experienced substantial growth and is now a $14 billion market, according to metric site Coingecko.
A particularly exciting area of open decentralized finance growth in last year was the diverse stablecoin space. 2019 saw the announcement of JPMorgan Coin and Facebook’s Libra, while projects like Tether and DAI gained further momentum––their combined market cap is over $13 billion as of this writing, more than triple what they were a year ago.
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The exponential growth of stablecoins can be additionally explained by their diversity, which has made decentralized financial instruments more accessible and offer its users a chance to gain long-term benefits. The value offered by stablecoins has turned them into a great investment opportunity and has begun to gather considerable momentum. In this blog post, we cover the top 5 stablecoins currently making waves in the growing Ethereum’s decentralized finance sphere.
A giant of DeFi, Tether is considered to be the most appreciative stablecoin since its launch in 2014, given its impressive market cap and trade volume. As per research by TheBlockfi, the USDT/ETH trading pair dominates the stablecoin space with 62% transactions. Tether alone is responsible for 94% of stablecoin trading volume, which is on par with Bitcoin in terms of market domination. At the time of writing, Coingecko shows USDT daily volume is higher than that of BTC, and is at second place on Coingecko’s best-performing assets ranking.
This is unsurprising onsidering the fact that Tether raised almost 89% of the total stablecoin supply by the end of the first quarter of 2020 and even managed to outplay biggies like Ripple and Bitcoin Cash.
It’s noteworthy that over 77% of USDT coins represent Tether’s market share on the Ethereum blockchain, and it’s just the beginning of the DeFi boom. With its recent cooperation with AAVE to borrow and lend USDT tokens as well as use them as collateral, Tether is only going to grow in the coming years.
Launched in 2017 by MakerDAO, DAI is pegged to the US dollar and issued on the basis of a complex system of oracles and over-collateralized loans. DAI’s value is backed by Ethereum, BAT, Wrapped Bitcoin and USD Coin, with USD Coin and Wrapped Bitcoin improving DAI’s liquidity and price stability while reducing the vulnerability of Market Protocol.
Billed as “the world’s first unbiased” stablecoin, DAI can serve as a medium of exchange, a unit of account and a store of value. This stable asset empowers a large spectrum of banking applications and activities with strong resilience against the cryptocurrencies’ volatility. Today, DAI has been used by many DeFi protocols, which has led to a rapid 355% surge in transaction volume in the first quarter of 2020.
Another gaining speed in the DeFi space is Coinbase’s USD Coin. The first quarter of 2020 observed a decline in USDC’s market capitalization, however; the coin has gained significant growth since mid-March. At the time of writing, USDC holds a sustainable market cap of $1 billion, thus making it the second largest stable asset. At the same time, the USDC coin trails Tether coin with 13% of the total coins locked into Ethereum blockchain, the result of its importance in Compound and AAVE protocols.
In fact, Coinbase’s Coin has the third lowest NVT rate since its usage is moderate compared to overall network value. The coin is pegged and backed 1:1 to the US Dollar to maintain liquidity in the stablecoin market. Moreover, Coinbase performs regular monthly audits to maintain the ratio.
Built on top of the Ethereum open-blockchain network, Paxos Standard is an ERC-20 token that aims to bring price stability to cryptocurrencies through the use of its stablecoin. The coin was established after the Paxos team noticed the opportunity in the infamous Tether controversy and made an extra effort to be as transparent as possible.
The coin is fully collateralized 1:1 by the US dollar, and is approved and regulated by the New York State Department of Financial Services. Moreover, Paxos offers the benefits of crypto-assets such as decentralized accounting and immutability. Since the coin is fully collateralized by dollars, Paxos offers a liquid and digital alternative to cash that is fully redeemable and available round the clock for instantaneous transaction settlement.
TrueUSD is a fully collateralized, legally protected and transparently verified ERC20 stablecoin. Introduced in early 2018, TrueUSD’s US dollar holdings are distributed in multiple bank accounts that belong to various trust parties, who publish the collateralized holding daily and conduct monthly audits. The stablecoin uses multiple escrow accounts to offer legal protections to token-holders against misappropriation.
The coin was the first regulated stablecoin fully backed by the U.S. dollar. It works through the use of smart contracts on the Ethereum open-blockchain network, then uses those smart contracts to issue and redeem a tokenized version of the U.S. dollar. Since the token creates a natural arbitrage opportunity in the market, its value is automatically pegged to the dollar.
Despite the impact of Covid-19 on the world economy, digital currencies, stablecoins in particular, observed significant growth in the DeFi space in 2020. By combining the best of both crypto and fiat, Ethereum-based DeFi stablecoins will add to digital currency adoption by increasing transparency and decreasing transaction risk. Tether, DAI, USDC and TUSD are all supported by Blockcard. You can deposit these and other digital assets into your Blockcard account to give your crypto immediate spending power.
The contents of this blog should not be taken as investment advice. Always do your own research or consult a professional before buying, selling or trading any digital asset.
Chelsea is the Marketing Manager at Ternio, the startup dedicated to solving the issues related to blockchain scalability and payment utility of cryptocurrency.