Fiat-Backed Stablecoins: What You Need to Know About Tether, USD Coin and Others
Cryptocurrencies have gained a lot of attention in recent years as more people begin to explore the benefits and potential of digital assets. However, the volatility of many cryptocurrencies can make them a risky investment. This is where stablecoins come in, offering a more stable value than other cryptocurrencies. One type of stablecoin is the fiat-backed stablecoin, which is backed by a fiat currency, such as the US dollar. In this article, we’ll take a closer look at fiat-backed stablecoins, including Tether, USD Coin, and others, and what you need to know about them.
What are fiat-backed stablecoins?
Fiat-backed stablecoins are cryptocurrencies that are backed by a fiat currency, such as the US dollar. This means that the value of the stablecoin is pegged to the value of the fiat currency. For example, one US dollar-backed stablecoin is equivalent to one US dollar.
Fiat-backed stablecoins can be used for a variety of purposes, including as a medium of exchange or as a store of value. They are also used to facilitate trading and investments in cryptocurrencies without the volatility associated with other digital assets.
Tether is one of the most well-known fiat-backed stablecoins, with a market capitalization of over $60 billion. It was launched in 2014 and is pegged to the US dollar at a 1:1 ratio. Tether is used on many cryptocurrency exchanges to facilitate trading and has become an essential part of the cryptocurrency ecosystem.
However, Tether has also faced controversy over the years, with some critics raising concerns about its transparency and whether it has sufficient reserves to back its stablecoin. These concerns have led some investors to avoid Tether and seek out alternatives.
USD Coin (USDC)
USD Coin is a stablecoin launched in 2018 and is backed by the US dollar at a 1:1 ratio. It is issued by Circle, a cryptocurrency company, in collaboration with Coinbase, one of the largest cryptocurrency exchanges in the world.
USD Coin has quickly gained popularity in the cryptocurrency world, with a market capitalization of over $9 billion. It has gained a reputation for being more transparent than Tether, with regular attestations of its reserves by an independent accounting firm.
Other Fiat-Backed Stablecoins
In addition to Tether and USD Coin, there are several other fiat-backed stablecoins on the market, including:
TrueUSD (TUSD): a stablecoin that is fully collateralized by US dollars held in escrow accounts. It was launched in 2018 and has a market capitalization of over $700 million.
Dai (DAI): a decentralized stablecoin that is backed by collateral held in smart contracts on the Ethereum blockchain. It is designed to maintain a 1:1 peg to the US dollar and has a market capitalization of over $2 billion.
Fiat-backed stablecoins are a popular and growing segment of the cryptocurrency market. They offer the stability of fiat currency with the benefits of blockchain technology, making them an attractive option for those seeking a stable digital asset. Tether and USD Coin are the most popular fiat-backed stablecoins, but there are also many other options available. As with any investment, it’s important to do your own research and consider the risks and benefits before investing in stablecoins.