Stablecoins top by Weld Money

Stablecoins top by Weld Money

by Weld Money admin
08.08.2022
·
min read

Weld Money allows users to perform payments with cryptocurrency (stablecoins) using the first cryptocurrency card in Ukraine – weld card. We would like to get a little deeper to understand which stablecoins are more reliable (after the UST crash, it’s pretty important) and, briefly, some technical details.

Tether 

One of the most stable and well-known cryptocurrencies. The team launched Tether at Bitfinex, a major cryptocurrency exchange. The value of USDT, is pegged to the US dollar at an exchange rate of 1:1. USDT accounts for 65% of all transactions on crypto exchanges. The market capitalization of USDT at the time of publication is over $65 billion.

Even though Tether boasts the largest capitalization and the best liquidity among all stablecoins, there are several serious questions about its reliability:

  • It is unknown exactly in which countries they are located and how reliable the banks in which Tether reserves are stored.
  • Tether does not issue complete financial statements and is not audited. The presence of reserves and their structure is confirmed in an abbreviated form by not famous, average auditor.
  • A significant part of the reserves is placed in assets, for which it is difficult to assess the risk based on the available data accurately.

USD Coin

USDC is also pegged to the US dollar 1:1. For every unit of USDC in circulation, there is a $1 reserve. Its work is arranged in a similar way to USDT. The market capitalization of USDC is over $54 billion.

USD Coin, or USDC, is a stablecoin issued by the U.S.-registered company Circle Internet Financial Ltd. At the same time, the management of the entire process of functioning and development of USDC is carried out by the consortium Center, which was founded by Circle itself and representatives of the Coinbase crypto exchange.

Let’s now look at the mechanism for issuing and redeeming the USDC tokens, providing an arbitrage opportunity (and a solid peg to the dollar). On their website, Circle states that “USDC can always be converted back to fiat (dollar) at any time through a Circle Account.”. And investors claim that there weren’t problems in converting USDC into USD.

Binance USD

Another fiat-backed stablecoin is Binance USD (BUSD), which has the same name as the world’s largest crypto exchange. At the same time, these coins are not issued by Binance itself but by the American company Paxos Trust Company.

Despite the lower current capitalization of BUSD ($17.5 billion) than USDT/USDC, this coin is quite actively traded with a daily turnover of about $6.5 billion.

The Paxos website claims that 100% of BUSD reserves are held either in real dollars in US bank accounts or in US Treasury Bills.

DAI

DAI is the native stablecoin of the Maker protocol. The market capitalization of this stablecoin is $7.2 billion.

DAI has a very interesting value maintenance mechanism, quite different from the previous three stablecoins. For each DAI issued with a value of $1 in special smart contracts, cryptocurrency collateral is frozen directly on the blockchain, with the current market value much higher (currently $1.78). More than half of the collateral is now USDC, about a quarter – Ethereum and Bitcoin, and the rest is trifles.

If the value of the crypto in the collateral goes down sharply and there is a risk that it will no longer be enough to cover the $1 DAI face value, then in this case, smart contracts allow you to sell the collateral quickly.

The good news is that DAI has already successfully survived several major cryptocurrency crises when the crypto in collateral collapsed quickly and firmly, and DAI did not fall much below $1. The bad news: in the course of these crises, all sorts of unexpected things happened related to the technical stuffing and the peculiarities of the functioning of smart contracts – so that the actors got a good sweat in places.

Generally, DAI, with its pretty innovative price fall mechanism, shouldn’t be considered the most reliable stablecoin, but from the diversification point of view – it is indeed worthy.

Weld Money admin
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