Although this is important for speculative reasons, it deters the idea of using digital currencies like Bitcoin for daily transactions. This led to the introduction of stablecoin to enable investors and traders to cushion against the inherent volatility in cryptocurrencies.
Tether (USDT) is one of the earliest and largest stablecoin in the cryptocurrency market. Over the years, however, there have been lots of controversies regarding the USDT reserve, which is causing many people to seek alternatives. In this article, we shall discuss USDT and some other stablecoins that have the attention of the market, following their reserve records.
Tether: The Largest USD Stablecoin
USDT is a stablecoin that is reportedly pegged in the ratio of 1:1 with the United States dollar. It is a centralized stablecoin that was previously launched as RealCoin in July 2014 by Tether Inc., before they rebranded it to Tether in November same year. So far, USDT has grown to over $68 billion market capitalization, becoming the largest and most traded stablecoin.
Unarguably, Tether is the go-to for many investors to buy digital currency or make daily transactions. However, some people are losing their trust in the stablecoin, given the controversies that have since been circulating regarding the USDT reserve. As of 2014, USDT issuer had claimed all USDT were fully backed by the traditional currency – US dollar. However, the narrative later changed in 2019, with Tether saying:
“Every tether is always 100% backed by our reserves, which include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities (collectively, ‘reserves’).”
Several people doubt this to be true for reasons that include Tether’s shady transaction with its sister company, Bitfinex exchange, involving $850 million. USDT is a centralized stablecoin, so there is no way for the public to verify whether Tether’s claims are true or false. However, it’s also worth noting that Tether now publishes an attestation on USDT reserve to debunk the FUDs and assure users all USDT is backed 100 percent.
Alternative Stablecoins with Solid Reserve Records
Aside from USDT, there are a number of other stablecoins with an excellent track record for their reserves.
It’s safe to mention that USD Coin (USDC) is one of, if not, the most transparent stablecoin available in the crypto market. USDC is another USD-backed stablecoin that was launched in September 2018 in collaboration between leading cryptocurrency exchange, Coinbase and Circle. The USDC reserve is audited every month, according to Circle.
Grant Thornton LLP, one of the top five accounting services companies, handles the reserve audit. The USDC reserve is spread across Cash Cash Equivalents, Corporate Bonds, Yankee CDs, US Treasuries, Commercial Paper, and Municipal US Agency Bonds. For most cases, Circle has always maintained a reserve higher than the USDC in circulation.
It’s not surprising why many crypto investors are switching to USDC, to the extent that its supply rose significantly this year. At the time of writing, USDC had over $29 billion market capitalization, becoming the second largest stablecoin.
Binance USD (BUSD) is one of the fastest growing stablecoin that also holds a significant level of trust in the market, probably due to the connection with Binance, the world’s largest crypto exchange, and trading platform. BUSD was launched in September 2019 by Binance exchange, in partnership with Paxos, which oversees the issuance.
BUSD is currently the third largest stablecoin with a market capitalization of over $12 billion. BUSD is regulated by the New York State Department of Financial Services (NYDFS), and the issuers also assure it’s backed 100 percent to the US dollar. The reserve is held with an FDIC-issued banking institution in the United States, and it’s also audited every month.
Are Decentralized Stablecoins the Future?
The main idea with cryptocurrency is centered around decentralization. Understandably, the market can’t do away with centralized elements or entities just yet, because the industry is still in a nascent stage. Although USDT, USDC, BUSD, TrueUSD, etc., are workable and able to help curb volatility, trust and transparency are still optimum.
Crypto investors can’t say they have 100 percent trust in these centralized coins because there’s no way for them to verify the reserve report themselves. This creates a potential market for decentralized stablecoins, one that the public can verify anytime.