12 Best Stablecoins To Invest In During Volatile Times
Looking for a top stablecoins list? You’re in the right place. After the dramatic collapse of TerraUSD (UST), investors are becoming increasingly skeptical when it comes to understanding the actual stability of stablecoins. From being backed by actual dollars in a bank account to relying on a decentralized protocol, stablecoins exist in various forms. This comprehensive guide to the best stablecoins will explain what stablecoins are, the different types to look out for and what are some examples of the top stablecoin to consider buying.
What Are Stablecoins?
Stablecoins are cryptocurrencies that have their price pegged and are backed by a singular reserve or group of assets. These price stabilization reserves can range from fiat currencies, national currencies, algorithms or commodities.
If you’re new to crypto, you might be wondering about the use cases of stablecoins. Their most common form of utility is as a medium of exchange.
Standard coins and tokens can appear extremely volatile as their value can wildly fluctuate because of huge inflows and outflows of funds. This can be cumbersome if you’re looking to use your crypto as a medium of exchange. Thankfully, with stablecoins, the value of the assets can be preserved as they’re meant to maintain their dollar value. This makes it easy for investors and traders to on-ramp their fiat and convert it into crypto as the exchange can be made with minimal price volatility.
On top of being a solid medium of exchange, crypto enthusiasts also use stablecoins to participate in Decentralized Finance (DeFi) projects that involve the lending or staking of stablecoins. Doing this provides investors with passive, low-risk yield as they provide extra liquidity on the platform. This ultimately makes staking or lending out stablecoins a viable option for investors during a period of high volatility and bearish sentiments.
Now that we’ve covered the basics of what stablecoins are and their various use cases, let’s move on to the different types of stablecoins in the crypto space.
What Are the Different Types of Stablecoins?
Fiat Backed Stablecoins
Fiat backed stablecoins are, as the name suggests, pegged to a fiat currency. A fiat currency is essentially not backed by a commodity and is issued by a government. Fiat backed stablecoins typically have a reserve of the equal amount of fiat currency to which they are pegged. For instance, USD Coin is a top stablecoin that is largely backed by U.S. dollar fiat currency. Fiat backed stablecoins can be used for transactions like other cryptocurrencies and are considered more reliable.
Crypto Backed Stablecoins
In essence, crypto backed stablecoins are stablecoins that are backed by a group of cryptocurrencies. By relying on another cryptocurrency as collateral, the average investor would certainly fear that the crypto backed stablecoin will be highly volatile. To relieve these worries, such crypto backed stablecoins are generally over-collateralized to make sure they maintain their value throughout periods of massive price fluctuations.
Unfortunately, UST’s implosion has smeared the reputation of the best algorithmic stablecoins despite solid examples like FRAX and DAI maintaining a solid track record. Also called non-collateralized stablecoins, algorithmic stablecoins do not have standard fiat or commodity collateral. These decentralized coins are made to help boost stability in market price without connecting a central authority. Algorithms include special stabilization measures, which are hardcoded on Ethereum smart contracts for the stablecoins. To combat periods of volatility, the supply of algorithmic stablecoins is highly responsive to market forces.
On a more technical level, an oracle contract is used to assist these algorithmic smart contracts in execution. These contracts help by retrieving pricing information for algorithmic stablecoins on other exchanges. Following this, the price periodically enters a rebasing contract to determine if supply should increase or decrease. The contract then analyzes the number of tokens to mint or burn from user wallets based on the information gathered.
Some stablecoin teams have gone one step further to make their algorithmic stablecoins partially collateralized. For example, FRAX is partially collateralized by fiat backed stablecoin USDC and FXS, the Frax protocol’s governance token.
Commodity Backed Stablecoins
Like fiat backed stablecoins, commodity backed stablecoins are backed by external assets that are not cryptocurrencies. In this case, commodity backed stablecoins are pegged to precious metals like gold. While commodities also fluctuate in price, they tend to hold value better in times of economic inflation than other forms of assets.
Commodity backed stablecoins are useful for investing in assets that are not always easy to source in a nearby geographical location. For example, physically buying and storing gold can be expensive and inaccessible in many places. By purchasing commodity backed stablecoins, investors can gain access to a tokenized form of these rare metals.
What Are the Best Stablecoins?
In order to determine what are the best stablecoins, we must first understand what makes a good stablecoin. On a fundamental level, the best stablecoins must provide transparency in their holdings. Also, top stablecoins must have a high trading volume so they can act as a liquid medium of exchange. These two factors combined provide a base on which investors can trust in the stability of the stablecoin, knowing that the stablecoin is backed by a credible reserve of assets and that the stablecoin can be easily exchanged with others.
From UDSC to DAI, here are the best stablecoins to invest in and include as part of your portfolio. For reference, each entry on this stablecoin list includes trading volumes between the period of June 25 and July 25 of 2022.
Best Fiat Backed Stablecoins
1. Tether (USDT)
If you’re a crypto veteran, it’s no surprise that Tether (USDT) tops our stablecoins list. Originally known as Realcoin, the Tether stablecoin was officially released in 2014 and was one of the earliest stablecoins to be created. The stablecoin is backed by multiple assets that include traditional currency and cash equivalents that range from bonds to commercial paper. While there have been rumors with how Tether isn’t fully backed, the team recently made the move to publish quarterly attestations that detail what makes up the reserves.
In the past month, 24-hour trading volume ranged between $25 billion and $80 billion, making it one of the top stablecoins if you’re seeking a high volume stablecoin. On some of the top sites for earning interest on crypto, investors can earn between 10% and 12.5% interest for Tether lending. Tether's transparency for how it works and what backs it is good. Some investors have said that including more detailed reports would help, and Tether plans to release a full audit to satisfy curious potential investors later in 2022.
2. USD Coin (USDC)
USD Coin was created by an entity called Circle, which is composed of multiple well-known figures in the crypto world. The coin launched in 2018 and became one of the top stablecoins because it offered an alternative to USDT. While Tether’s holdings remained a mystery at the time, USDC provided proof of its backing by assets derived from the U.S. dollar. This transparency and stability gained from its fiat backing led to USDC taking the number two spot when it comes to the amount of USDC being traded everyday.
This past month, 24-hour trading volume numbers ranged between $3.5 billion and $9.5 billion. For stablecoin investors looking to earn a safe return, they can visit staking and lending platforms to earn between 6% and 14% interest for loaning out their USDC.
3. Binance USD (BUSD)
Contrary to popular belief, Binance USD (BUSD) isn’t just your average stablecoin with Binance’s label slapped on for good measure. BUSD is the collaborative project between Binance and Paxos and is completely backed by U.S. dollars. These funds are also kept in Paxos-owned bank accounts in the U.S. Since everything is done by the book and is regularly audited, BUSD is one of the only few fiat backed stablecoins to be approved by Wall Street regulators. This combined with Binance’s active branding makes BUSD one of the best stablecoins to invest in. With a steady daily trading volume between $3.5 billion and $8.5 billion during the past month, BUSD is steadily becoming a force to be reckoned with in the stablecoin space.
Another reason why BUSD is one of the best stablecoins on this list is because of its interest income potential. According to Binance, investors can earn up to 15% interest through lending out BUSD. This huge yield allows the stablecoin to pose a sizable threat to the likes of stablecoin giants like USDT and USDC.
4. True USD (TUSD)
True USD was founded by Danny An, Tory Reiss, Rafael Cosman and Stephen Kade in 2018 and gained attention because of its reputation as the first stablecoin with real time audits and on-chain proof of reserves. To ensure each and every TUSD token is fully backed at a 1:1 ratio by the U.S. dollar, accounting firm Cohen & Company performs regular monthly audits to guarantee that TUSD is 100% collateralized. This makes it a solid centralized stablecoin to invest in if you’re keen on passively staking stablecoins that emphasize regulation above all else.
During the past month, 24-hour trading volume numbers ranged between about $45 million and $400 million. Yield-wise, investors can earn between 10% and 12.3% interest on their True USD tokens on some of the top lending platforms.
Best Crypto Backed Stablecoins
5. Dai (DAI)
The Maker Foundation created the DAI stablecoin in 2017, when the mere idea of a crypto backed stablecoin proved risky and unrealistic. While DAI was originally created to provide a non-volatile lending asset for businesses and individuals, the Maker eventually gave governance of DAI to MakerDAO. To quell the fears of crypto backed stablecoin volatility, DAI is over-collateralized with the use of Collateralized Debt Position (CDP) smart contracts. These Maker Protocol smart contracts allow users to lock up their collateral assets like ETH in exchange for DAI.
To crypto investors, DAI immediately stands out because it’s backed by crypto assets rather than fiat dollars. If there were a sudden shift in DAI's value, investors can easily convert their DAI tokens to coins like ETH or WBTC because of the CDP smart contracts in play. Even after ETH’s fall from $3,000 in the past few months, DAI has managed to maintain its peg because of its diversified reserves and over-collateralized nature. This makes it one of the best stablecoins in the market because DAI has shown its ability to withstand huge crashes
For reference, DAI's 24-hour trading volume numbers this past month fluctuated between $100 million and $640 million.
6. Magic Internet Money (MIM)
As a key token in the Abracadabra Protocol, Magic Internet Money tokens are created when you borrow it against interest bearing tokens like YFI or CRV. This transaction essentially lets you mint a liquid asset in exchange for locking up illiquid assets, which can result in more leverage as you swap MIM for USDT and repeat the process of exchanging them for more interest bearing tokens. Despite gaining a bad name as the go-to stablecoin for DeFi degens, MIM has managed to hold up well in recent times. This is largely thanks to its over-collateralized debt positions that are passively generating yield and help to defend MIM’s peg during volatile periods.
24-hour trading volume the past month was between $3 million and $8 million. While this might pale in comparison to some of the top stablecoins on this list, MIM remains one of the best stablecoins because of the Abracadabra Protocol. With enough tinkering, you can effectively lend MIM and borrow it at the same time, generating a loan that can pay for itself. For risk-seeking individuals willing to do the research, this is certainly a strategy worth exploring.
7. Reserve Rights (RSV)
One of the purposes of Reserve Rights is to provide an alternative to fiat backed stablecoins that are too centralized. RSV was developed and launched in 2019 by an entity called the Reserve Project. As one of the top crypto backed stablecoins, RSR uses baskets of contract-managed cryptocurrencies to maintain its peg. As part of its future plans to become one of the biggest and best stablecoins, the team plans to eventually leverage more than 100 low-volatility assets to offer more stability to investors. It’s this focus on transparency, decentralization and multi-asset collateralization that makes RSV attractive to investors.
The past month's 24-hour trading volume numbers ranged between $10 million and $60 million. Although the Reserve platform does not specify an interest rate investors can earn for lending, there is a page that provides a detailed explanation of how Reserve Rights’ earnings are calculated.
Best Algorithmic Stablecoins
8. Neutrino USD (USDN)
Originally launched on the Waves blockchain in 2019, Neutrino USD has had its fair share of shake ups, especially during the UST implosion. As an algorithmic stablecoin, USDN is backed by WAVES and the U.S. dollar and you can exchange $1 worth of USDN for $1 worth of WAVES. Investors are then encouraged to stake their USDN stablecoins to provide liquidity and are handsomely rewarded with up to 15% APY yields.
Although this might set off Terra-like alarm bells, the team has numerous features in place to prevent a collapse. Firstly, the swapping protocol prevents unlimited minting of WAVES and instead limits it to the total amount of WAVES sent to the smart contract by users. This prevents an oversupply if there’s suddenly a rampant inflow of WAVES from short-selling. Also, entering and exiting the WAVES ecosystem is made tougher as investors must first buy and stake NSBT tokens to access the lucrative 15% USDN yields on Waves.Exchange.
During the past month, 24-hour trading volume numbers were between $2 million and $11 million. Because of its decentralized nature, the USDN is one of the best stablecoins for those seeking yields similar to the good old days of Terra’s Anchor Protocol.
9. Decentralized USD (USDD)
Although it’s one of the newer algorithmic stablecoins, Decentralized USD (USDD) has stirred up quite a storm. After the infamous UST crash, Justin Sun created this coin that retreaded the same algorithmic ground while avoiding mechanisms that can contribute to a death spiral. The coin was launched on the TRON blockchain and is pegged at a 1:1 ratio to the U.S. dollar. With over 50 million accounts already in existence, this coin is potentially shaping up to be one of the most popular stablecoins for investors as it slowly rolls out its mainnet launch plans.
In the past month, 24-hour trading volume numbers were between $30 million and $250 million. According to the creator, investors who stake on the platform may earn up to 30% interest. This ultimately makes it potentially one of the best stablecoins for generating passive earning as well.
10. Frax (FRAX)
FRAX initially made headlines in 2019 by being the first fractional algorithmic stablecoin in the world. FRAX maintains its peg by making use of two reserves: fiat-backed USDC and FXS, the Frax ecosystem’s native token. The ratio of USDC to FXS depends on the collateral ratio, which varies the amount of USDC and FXS needed to mint $1 worth of FRAX. This makes FRAX a partial algorithmic stablecoin since it has fiat backing on top of its algorithmic backing.
Interestingly, the Frax protocol owns close to 20% of CVX available tokens. This allows the team to direct Curve Finance’s liquidity towards their own stablecoin pool of DAI, USDT, USDC and FRAX. By joining hands with such established stablecoin players, FRAX manages to elevate its reputation as a stablecoin that’s able to defend its peg in times of high volatility.
Within the past month, 24-hour trading volumes were between $5 million and $42 million. Although it may not be one of the best stablecoins for earning high interest rates, it can earn investors about 5% interest on average.
11. Fei USD (FEI)
Fei protocol aims to maintain liquidity in a way that ETH and FEI trade similarly to ETH and USD. While it has a lower market cap than most of the top stablecoins on this list, FEI makes the cut because of its unique method of preventing depegging. Fei Protocol uses Protocol Controlled Value (PCV) instead of the Total Value Locked (TVL) model. With PCV, the Fei protocol retains the user-deposited funds permanently. This gives the protocol full authority to mint and burn FEI to maintain the $1 peg. To ease depegging fears, the protocol reweighs FEI at 4-hour intervals, with the minimum price difference below the fixed point being 0.5%. On top of using a PCV model, FEI also directly incentivizes use of it by rewarding minting and trading.
Within the last month, daily trading volume totals for FEI USD ranged between $1.1 million and $9.2 million.
Best Commodity Backed Stablecoins
12. PAX Gold (PAXG)
Created by Paxos, PAX Gold is an ERC-20 token on the Ethereum chain that was originally launched in 2019. Because of the Paxos brand behind the token and its high transparency, PAXG has emerged to become one of the top commodity backed stablecoins. It also helps that the government monitors and authenticates each PAXG token.
Paxos has one fine troy ounce of gold in its reserves for each token and it houses London Good Delivery gold bars. For investors looking to own a tokenized form of gold, PAXG offers a viable alternative.
The 24-hour trading volume numbers during the past month fluctuated up and down between $9 million and $44 million. This high amount of liquidity within the commodity backed stablecoin market makes it the best option.
Where To Stake Stablecoins
To earn interest on any of the top stablecoins or cryptocurrencies, investors can use platforms like Bybit Savings for staking. On top of offering a competitive yield, Bybit offers the advantage of staking under flexible and fixed terms. This gives investors the freedom and flexibility to pick a staking period that suits their risk appetite. Register with us and get started on your passive income journey today.
The Bottom Line
We hope our guide has helped you in deciding what the best stablecoins are and educated you on their differences. The most popular stablecoins are likely to continue seeing favorable trading volume trends as more investors shift their interest to coins that are backed by some form of assets and offer transparency when it comes to what they’re backed by. During bearish markets, we’re also likely to see more investors stake stablecoins to earn a constant yield while waiting out the negative sentiments.