What is the Safest Stablecoin?

What is the Safest Stablecoin?

Summary: The safest US-pegged stablecoin in crypto is USD Coin (USDC) by Circle. The USDC stablecoin is the largest and most liquid digital dollar in crypto that offers instant and cheap 1:1 redemptions.

USDC is the most transparent fully-reserved stablecoin that is 100% backed by cash and short-dated US treasuries. USDC reserves are also held in the custody of leading financial institutions like BlackRock and BNY Mellon.

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USDC - World's Safest Stablecoin

Platform Highlights

  • Backed 1:1 by Cash & short-dated US Treasury Notes.
  • Investors include BlackRock, JPMorgan, Goldman Sachs.
  • Over $49 billion in circulation and 1.5 million holders worldwide.
Safest Stablecoin
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Audited Proof of Reserves
Audited Proof of Reserves

What makes a Stablecoin Safe?

There are many variables to consider when trying to determine the safety of a stablecoin in Crypto. Our research team has reduced the complexity to three key factors which come into play when measuring the stability and longevity of a USD stablecoin.

The first is that the stablecoin is backed by a reserve asset. This reserve asset can be USD, gold, oil, or a basket of currencies. The second factor is that the stablecoin issuer has enough cash on hand to cover all redemption requests. The third factor is that the stablecoin issuer is not exposed to any credit risk.

Collateralization types for stablecoins.

What are the Safest Stablecoins?

Based on the three main considerations for stability, we believe that the following stablecoins are the safest in Crypto:

  1. USD Circle (USDC) - Overall safest stablecoin
  2. Tether (USDT) - Best alternative to USDC
  3. Dai (DAI) - Best decentralized stablecoin
  4. Frax (FXS) - Best decentralized stablecoin for high yields
  5. Binance USD (BUSD) - Good centralized alternative
  6. Magic Internet Money (MIM) - Good high yield centralized alternative

Why USDC is the Safest Stablecoin

USDC is widely considered to be the safest stablecoin because they publish monthly attestation reports that transparently outline the holdings of its reserves. USDC is currently 100% provably backed by US Dollar reserves and short-dated US treasury securities with less than 3-month maturities.

Circle, which is the company behind USDC, is also backed by some of the biggest investors in the world which include BlackRock, JPMorgan and Goldman Sachs.

USDC: The world's largest and safest stablecoin.

Is Tether (USDT) a Safe Alternative?

The second safest stablecoin is Tether (USDT). Tether is also backed by USD reserves and is currently the largest stablecoin in circulation with over $4 billion in USDT outstanding.

Tether has been embroiled in controversy over the past year but has recently taken steps to increase transparency by publishing regular audits of their USD reserves. This is why we give a preference to USDC over USDT. You can compare both stablecoins in our extended USDC vs USDT guide.

What is a Stablecoin?

A stablecoin is a type of digital asset that is pegged to a specific asset or currency, such as the US dollar, and is designed to maintain stability in its value. Stablecoins are typically issued on a blockchain platform, and their value is backed by reserves of the asset or currency that they are pegged to. This means that the value of the stablecoin is directly linked to the value of the underlying asset or currency, and it is designed to maintain a stable value over time.

There are two main types of stablecoins: centralized stablecoins and decentralized stablecoins. Centralized stablecoins are issued and backed by a central authority, such as a bank or financial institution, and are typically more transparent in their operations. Decentralized stablecoins, on the other hand, are issued and backed by a decentralized network of participants, and their value is maintained through a process known as collateralization.

Centralized vs Decentralized Stablecoins

Centralized and decentralized stablecoins both have their own advantages and disadvantages. Centralized stablecoins are backed by a central authority, such as a government or a company. The value of the coin is pegged to a fiat currency, such as the US dollar, and the central authority manages the supply of the coin to maintain its value.

One advantage of centralized stablecoins is that they are more stable than decentralized ones because the central authority can control the supply. However, centralized stablecoins are less secure because the central authority can pause or blacklist your address from interactive with the contract address.

Decentralized stablecoins are not backed by a central authority. Instead, they are backed by a reserve of assets, such as commodities or other cryptocurrencies. The value of the coin is pegged to a fiat currency, such as the US dollar, and the price is maintained by algorithms.

One advantage of decentralized stablecoins is that they are more secure because there is no central authority that can control the supply or blacklist your address. However, decentralized stablecoins are less stable because the price is determined by algorithms and not by a central authority.

Final Thoughts

Overall, USDC is the best and safest stablecoin in the cryptocurrency ecosystem. There is no real reason to use any other stablecoin, because the risk they pose is significantly higher than USD Coin. These risks are underpinned by the fact that alternative are either decentralized and inherently unstable, or are owned by an entity that does not provide transparent reports, like Tether and Binance.

Adrian Graham

Co-Founder & former Investment Banker (Finance MBA) turned Full-Time DeFi analyst and researcher. Left traditional finance to pursue my interest in digital assets and decentralized finance.

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