With the rise of cryptocurrencies, a question often comes back: which stablecoin to choose ? Stablecoin s make it possible to reduce volatility while offering the speed of transactions and blockchain safety stablecoin However, faced with a multitude of options, it is crucial to know which option is the most suitable for your needs.
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What is a stablecoin ?
Stablecoin is a cryptocurrency stablecoin to maintain parity with a traditional currency, such as the US dollar or the euro. This reduces volatility, while offering the advantages of digital assets. There are several types of stablecoin s depending on their mode of operation:
- Centralized Stablecoin : backed by fiduciary reserves (such as USDT USDT USDC USDC .
- Decentralized Stablecoin : supported by crypto-actives placed in collateral in intelligent contracts (such as DAI or Frax).
- Stablecoin s algorithmic : maintain their parity thanks to a mechanism of equilibrium between supply and demand.
A tax strategy thanks to the stablecoins?
One of the main advantages of the stablecoins, and particularly stablecoinbacked on fiduciary currencies like theUSDT or theUSDC, is to be able to stay in crypto without having to iron by a fiduciary currency (Fiat). This strategy makes it possible to avoid, for the moment, immediate tax implications in certain countries. As long as we keep our funds in the form of a stablecoinS, this avoids conversions to traditional currencies, which can lead to tax obligations.
The main stablecoinof the market
USDT : a popular choice, but controversial
The USDT (Tether) is the most used stablecoin He is centralized and supported by reserves in dollars , but he has often been criticized for his lack of transparency. Unlike other stablecoin s like the USDC USDT controls are not as strict, raising questions about the quality and verification of its reserves . So what stablecoin to choose if the USDT has risks of this kind?
USDC : Transparency above all
The USDC is often considered safer due to stricter controls. Emitted by Circle and Coinbase , it benefits from clearer regulations and regularly audited reserves. If you are wondering which stablecoin to choose , the USDC could be a reassuring option for users seeking more guarantees in terms of transparency.
Algorithmic stablecoin: DAI and FRAX
DAI: Decentralized reference stablecoin
The DAI , created by Makerdao , is a stablecoin supported by cryptocurrencies placed in collateral. This means that users block cryptocurrency (such as Ether) in smart contracts to generate DAI. Unlike stablecoin , the DAI is not controlled by a single entity, which reduces the risks of centralization.
However, the DAI has certain limitations on centralized exchange platforms ( CEX ). The pairs associated with the DAI are often rarer than those of the USDT or the USDC . Therefore, to make cryptocurrency purchases on CEX, it may be necessary to go back to USDT or USDC , which benefit from better adoption.
Frax: a stablecoin algorithmically hybrid
The Frax is unique in its kind, being a stablecoin partially algorithmic. It combines part of its cryptocurrency reserves with an algorithmic mechanism to maintain its parity with the dollar. This model is based on a subtle balance between supply and demand.
When Frax demand increases, the algorithm adjusts the supply by issuing more tokens to maintain the stable price, and vice versa when demand decreases. This has the advantage of limiting dependence on reserves in traditional currencies.
However, algorithmic stablecoin If supply or demand fluctuates too quickly, the system can lose its balance, resulting in risk of depending (loss of parity with the dollar). It is a factor to consider when wondering which stablecoin to choose, especially for investors wishing to limit the risks as much as possible.
FDUSD : a stablecoin in full adoption
The FDUSD (First Digital USD) is a stablecoin that is starting to gain in popularity. It is supported by several major platforms, including Binance . FDUSD combines stability and rapid adoption thanks to its compatibility with centralized finance platforms (CEX). This makes it an increasingly popular choice by users seeking to transfer funds between different cryptocurrencies with stable parity.
Nevertheless, as for the DAI, the pairs associated with FDUSD are still limited, often obliging the users to be ironed by more common stablecoinsuch as theUSDT or theUSDC during transactions on CEX.
Algorithmic stablecoins: why are they fragile?
Unlike centralized stablecoin stablecoin sables like the Frax do not fully depend on fiduciary currency reserves. Their mechanism is based on sophisticated algorithms which adjust tokens in real time to maintain parity with the dollar.
This model has an advantage during stability. However, during periods of high volatility, supply and demand adjustments can become imprecise, resulting in loss of parity . An emblematic example of a stablecoin algorithmic which has lost its parity and has failed to restore it is the terrausd (UST) . Terrausd was a stablecoin algorithmic linked to the blockchain , which maintained its parity with the dollar via an arbitration mechanism with the native token of Terra, the Luna .
In May 2022, the system underwent extreme pressure due to a drop in trust in investors and a massive liquidation of Luna. This phenomenon caused a devaluation spiral where the UST lost its parity with the dollar. Despite several attempts to restore parity, the UST failed to return to $ 1, resulting in a collapse of Luna's value and a loss of billions of dollars on the market.
This incident highlighted the fragility of algorithmic stablecoinin high volatility and imbalance between supply and demand.
StablecoinS and Staking: an investment strategy?
Although the stablecoin s is not used to secure blockchain networks, they play an essential role in stuking . On certain decentralized finance platforms ( DeFi ), users can “stike” stablecoin s, that is to say immobilize them in exchange for rewards in the form of interest. This practice makes it possible to generate passive yield without being exposed to the volatility of conventional cryptocurrencies.
Stablecoins and the risk of depending
A time is the loss of parity between stablecoin and the currency to which it is backed. This phenomenon can occur in the event of a crisis of confidence or extreme volatility in cryptocurrencies. For example, a lack of transparency on the reserves of a stablecoin can sow doubt among the users, resulting in massive sales and a loss of value.
In the case of algorithmic stablecoin, too strong or too low demand can also cause an extent if the algorithm fails to adjust the supply quickly.
Digital currencies of central banks: competition with stablecoins?
Faced with the rise of stablecoin s, several central banks plan to launch their own digital central banking currencies (CBDC) . These digital currencies would be directly backed by the reserves of a country and would offer a digital alternative to tickets and parts.
CBDCs are not cryptocurrencies in the decentralized sense of the term . They would be issued and controlled by governments, offering good stability, but at a cost in terms of confidentiality and independence. They could also replace part of the use of stablecoin s in daily transactions.
Conclusion
Choosing the right stablecoin depends on your specific needs, whether in terms of safety, performance or availability on exchange platforms. stablecoincentralized like theUSDT and theUSDC currently dominate the market thanks to their massive adoption, while decentralized stablecoinsuch as DAI and Frax offer more innovative but less accessible alternatives for the moment.
As the regulation of stablecoins evolves, as well as the adoption of CBDC, it will be interesting to see how these different assets coexist and shape the future of digital finance.
FAQ on stablecoins
1. What is a stablecoin ?
Stablecoin stablecoin whose value is linked to that of a stable asset, generally a fiduciary currency like the dollar or the euro. The objective is to reduce volatility associated with conventional cryptocurrencies such as Bitcoin or Ethereum .
2. What are the advantages of the stablecoin s compared to fiduciary currencies?
Stablecoin stablecoin possible to take advantage of the stability of a fiduciary currency while remaining in the cryptocurrency ecosystem. This avoids converting regularly into euros or dollars, which may have tax implications. In addition, they allow fast, inexpensive and permanently accessible transactions.
3. What is the difference between a centralized and decentralized stablecoin
A stablecoin , such as the USDT or the USDC , is issued by an organization which holds reservations in fiduciary currency to guarantee its value. A stablecoin , like DAI, is supported by digital assets placed in guarantee in smart contracts, without central control entity.
4. How do stablecoin keep their parity with the dollar?
The stablecoin use different mechanisms to maintain their parity with the dollar. The stablecoin hold equivalent reserves in dollars, while the stablecoin algorithmic adjust their supply according to demand thanks to algorithms. Some may be vulnerable to a loss of parity, called dependent , during periods of high volatility.
Are the stablecoin invest
? Stablecoin stablecoin are mainly used to keep the value stable or to facilitate transactions. They are not designed to grow in value like other cryptocurrencies. However, some decentralized finance platforms ( DeFi stablecoin “stuker” and generate passive yields.
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
