Which is the safest stablecoin?
USDC gained in market capitalization while USDT slipped billions of dollars post UST fiasco.
Stablecoins form a crucial part of the crypto ecosystem bridging traditional currencies and crypto assets. They contribute to more than 90% of the all crypto transactional volume on a daily basis. It has received widespread adoption mainly because of the fact that it is stable (as it is pegged to an external asset in most cases). However, stablecoins has received a lot of flak in the past and has intensified recently since the downfall of algorithmic stablecoin TerraUSD (UST). Market participants prefer the non-volatile nature of stablecoin especially during periods of high volatility and uncertainty where profits from crypto are moved into stablecoins waiting for the right buy opportunity. With Bitcoin (BTC) currently well on track to register losses for the eight consecutive week and the negativity surrounding the stablecoin ecosystem, it is time to discuss the safety of the most prevalent stablecoins in the market. In today’s article, we will analyze the top 2 stablecoins and understand the tradeoffs between them.
Tether (USDT)
Tether (USDT) is the top stablecoin of the crypto market. With a market capitalization of $74 billion, USDT is the most transacted and US dollar-liquid stablecoin making it one of the strongest contenders for the safest stablecoin. According to Tether, it has never failed to process a redemption request for USDT at a value of $1 per USDT token since 2015.
When a depeg occurs, it doesn’t mean USDT is no longer backed by 1-to-1 with reserves, or that USDT peg is lost, or that Tether redemptions are being processed at less than $1 per USDT. It just indicates that selling pressure on exchanges has dried up the liquidity.
In instances where exchange liquidity is too low, investors come to Tether to request a redemption. On May 11 and 12, the price of USDT deviated from its typical price of $1 on a few exchanges. This caused investors to purchase USDT on those exchanges for a discount and then redeem those USDT tokens with Tether on a 1-to-1 basis for a profit.
Since May 11, Tether reported that it has successfully processed $7 billion of USDT redemptions (for 1-to-1 with USD peg) for verified individuals. The size of this redemption has earned the trust of investors and has explicitly shown the capability of USDT to handle redemptions.
USDC or USDT?
During the recent crash post the UST drama, when USDT slipped in billions of market cap, USDC has increased its market cap from $48 billion to $52 billion. Though not a great jump, it shows that USDC might be well on its way to give a tough battle to the market leader and become the most trusted stablecoin during unstable times.
Despite the large number of stablecoins (both asset-backed and algorithmic-backed) available, USDT and USDC have a commanding presence in terms of liquidity, security and market cap. In terms of market cap, USDT is the sole winner but when it comes to transparency, USDC has a clear upper hand.
However, we strongly encourage investors to only use stablecoins for short-term trade objectives and refrain from investing in them for high-risk interest rates. Bitcoin is and will continue to be the safest crypto asset in the market.
Long on TEZOS here,
the FXPROFESSOR
USDC gained in market capitalization while USDT slipped billions of dollars post UST fiasco.
Stablecoins form a crucial part of the crypto ecosystem bridging traditional currencies and crypto assets. They contribute to more than 90% of the all crypto transactional volume on a daily basis. It has received widespread adoption mainly because of the fact that it is stable (as it is pegged to an external asset in most cases). However, stablecoins has received a lot of flak in the past and has intensified recently since the downfall of algorithmic stablecoin TerraUSD (UST). Market participants prefer the non-volatile nature of stablecoin especially during periods of high volatility and uncertainty where profits from crypto are moved into stablecoins waiting for the right buy opportunity. With Bitcoin (BTC) currently well on track to register losses for the eight consecutive week and the negativity surrounding the stablecoin ecosystem, it is time to discuss the safety of the most prevalent stablecoins in the market. In today’s article, we will analyze the top 2 stablecoins and understand the tradeoffs between them.
Tether (USDT)
Tether (USDT) is the top stablecoin of the crypto market. With a market capitalization of $74 billion, USDT is the most transacted and US dollar-liquid stablecoin making it one of the strongest contenders for the safest stablecoin. According to Tether, it has never failed to process a redemption request for USDT at a value of $1 per USDT token since 2015.
When a depeg occurs, it doesn’t mean USDT is no longer backed by 1-to-1 with reserves, or that USDT peg is lost, or that Tether redemptions are being processed at less than $1 per USDT. It just indicates that selling pressure on exchanges has dried up the liquidity.
In instances where exchange liquidity is too low, investors come to Tether to request a redemption. On May 11 and 12, the price of USDT deviated from its typical price of $1 on a few exchanges. This caused investors to purchase USDT on those exchanges for a discount and then redeem those USDT tokens with Tether on a 1-to-1 basis for a profit.
Since May 11, Tether reported that it has successfully processed $7 billion of USDT redemptions (for 1-to-1 with USD peg) for verified individuals. The size of this redemption has earned the trust of investors and has explicitly shown the capability of USDT to handle redemptions.
USDC or USDT?
During the recent crash post the UST drama, when USDT slipped in billions of market cap, USDC has increased its market cap from $48 billion to $52 billion. Though not a great jump, it shows that USDC might be well on its way to give a tough battle to the market leader and become the most trusted stablecoin during unstable times.
Despite the large number of stablecoins (both asset-backed and algorithmic-backed) available, USDT and USDC have a commanding presence in terms of liquidity, security and market cap. In terms of market cap, USDT is the sole winner but when it comes to transparency, USDC has a clear upper hand.
However, we strongly encourage investors to only use stablecoins for short-term trade objectives and refrain from investing in them for high-risk interest rates. Bitcoin is and will continue to be the safest crypto asset in the market.
Long on TEZOS here,
the FXPROFESSOR
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