Stablecoins, or cryptocurrencies, should be considered key elements of a global ecosystem of digital assets pegged to fiat currencies. For some use cases, they can easily replace traditional currencies: people use them as stores of value, mediums of exchange, and cross-border transfer tools.
Therefore, choosing the right stablecoin is an important step for every trader and investor. Owners of collapsed TerraUSD (UST), Fei (FEI) and Neutrino USD (USDN) have lost millions as their stablecoins stabilize.
Top Stablecoins to Watch in 2023: The Basics
In this review, U.Today will cover the most important trends in the stablecoin segments and highlight some assets that are definitely worth watching in 2023. Here are some trends expected to dominate the stablecoins segment in the coming year:
- Top three centralized stablecoin blue chip (US Dollar Tether [USDT] By Tether Limited, USD Coin [USDC] Circle Inc. and by Binance USD [BUSD] by Binance and Paxos) will remain uncontested;
- Meanwhile, USDC may surpass USDT in terms of market capitalization in 2023;
- Turbulence is on the cards in the decentralized stablecoin sphere: current designs fail to prevent repeated de-pegging of assets: Maker’s DAI is an obvious beneficiary of this process;
- The European stablecoin segment will gain traction as the industry desperately needs reliable regulated EUR-based stablecoins;
- Finally, we should expect the emergence of new stablecoins tied to unusual assets, including the Offshore Yuan (CNH) and even commodities such as Gold (XAU) and Silver (XAG).
In general, centralized stablecoins will maintain the role of “fuel” for the upcoming rise. This area will move to greater transparency and more certifications and audits will be published.
However, it remains unclear whether the major centralized stablecoins will be able to reach the new capitalization threshold in 2023. The decentralized stablecoin segment will remain fragile: more painful de-pegs are to be expected.
What are stablecoins?
Stablecoins are cryptocurrencies that try to link their prices to assets from other classes: fiat currencies, commodities, etc. In this case, “stable” means that the prices of stablecoins are more predictable than the prices of most cryptocurrencies.
Thus, stablecoins appeal to the mainstream of cryptocurrencies, i.e. highly volatile prices. Therefore, people use them to rebalance their portfolios, as well as for safe storage of value and cheap money transfers.
There are two main classes of stablecoins, centralized and decentralized or algorithmically supported. Centralized stablecoins are linked to an underlying asset (US Dollar, Euro or Gold) held by the issuer, which in turn is a centralized entity. Technically, it looks no different than a central bank issuing notes backed by government reserves.
Basically, centralized stablecoins are backed by commercial paper, 10-year US Treasuries, reserves in cash and cash equivalents, etc. supported by Periodic checks or certifications by third-party services are designed to verify that the balance of a centralized stablecoin is healthy.
Centralized stablecoins are the largest class of stable assets; all three top stablecoins by market capitalization belong to this group.
Decentralized stablecoins keep their stake stable through a complex architecture of smart contracts. These systems preserve the value of decentralized stablecoins by periodically minting/dissolving reserve cryptocurrency assets.
Some decentralized stablecoins are run by DAOs. Thus, although these systems are more vulnerable to attacks, they are more in line with the decentralization ethos of cryptocurrencies. Decentralized stablecoins DAI and FRAX are responsible for the lion’s share of the segment’s capitalization.
Top Stablecoins to Watch in 2023: The Majors
Now is the right moment to review all the main centralized stablecoins, the main elements of the stablecoin sphere: together they are responsible for 92.1% of the stablecoin market capitalization.
Launched by Tether Limited in 2014, US Dollar Tether (USDT or USD₮) is the world’s largest stablecoin by trading volume and market capitalization. Its net supply peaked in May 2022 when it exceeded $84 billion. As of press time, the stablecoin capitalization stands at $65 billion.
In 2022, Tether’s USDT proved itself as a reliable store of value and payment: when many major stablecoins lost their pegs during the Alameda/FTX collapse, USDT seemed stronger than the others.
To increase stability, Tether (USDT) reduced USDT’s exposure to commercial paper and increased its role in a basket of US bonds.
USD Coin (USDC) Circle Inc. was launched in September 2018 as a competitor to Tether. This year, it was closer than ever to surpassing its rival: at the end of June 2022, USDC capitalization exceeded $58 billion.
By Q3 2022, its reserves are backed by short-term US Treasuries (80%) and cash Dollars (20%); both types of assets were held in US regulated institutions. In addition to increasing the supply of USDC in circulation – USDC capitalization has added $4 billion since January 2022, despite a severe recession – Circle has strengthened its transparency and security tools.
Analysts noted that in 2022, USDC managed to surpass USDT in multiple indicators, including usage among whales, supply and settlement of daily transactions with Ethereum (ETH), and more.
Binance USD (BUSD), the youngest asset of the Big Three, was launched in September 2019 in collaboration between Binance and Paxos. It is collateralized 1:1 with fiat USD held in Paxos-owned bank accounts in the US.
Binance USD (BUSD) is the native stablecoin of Binance, the world’s largest cryptocurrency ecosystem. It also showed significant growth in 2022: its market capitalization added almost 30% year-over-year, the most impressive result among all major stablecoins.
In Q4 2022, the stablecoin expanded as two major high-performance smart contract platforms, Polygon Network (MATIC) and Avalanche (AVAX).
Top Stablecoins to Watch in 2023: Decentralized Stablecoins
While 2022 will be painful for most cryptocurrency assets, decentralized stablecoins are among the hardest hit. Therefore, it would be interesting to check which decentralized stablecoin can pass the test in 2023.
Dai (DAI), a veteran decentralized stablecoin by Ethereum (ETH) vet Maker DAO, was launched in September 2017. It is the only example of a massively adopted decentralized finance (DeFi) protocol. It is provided by the cryptocurrency itself: Ethers (ETH) and Maker (MKR) tokens play an important role in their design.
In 2022, Dai (DAI) was used in a compensation program for owners of the currently defunct stablecoin Fei (FEI). Also, the token expanded to Ethereum’s L2s Arbitrum and Optimism, increasing APYs for its internal savings product.
FRAX, a USD-pegged stablecoin launched by Frax Finance in December 2022, pioneers the concept of a hybrid stablecoin as it is partially collateral-backed and partially algorithmically stabilized. FRAX is part of the Frax Protocol, which features Frax Shares (FXS), a management token.
FRAX is fully on-chain: Chainlink uses oracles for better sustainability of the FRAX/FXS system. Its pledge rate is floating: if FRAX changes hands below $1, the protocol immediately increases the pledge rate.
As covered by U.Today, FRAX came to the BNB Chain in December 2022.
USDD, an algorithmic crypto-collateralized stablecoin by the TRON DAO ecosystem, launched in 2022. USDD is backed by an over-collateralized basket of various cryptocurrencies, including Bitcoin (BTC), Tronics (TRX), and USDT. As of late December 2022, USDD is already 2x collateralized.
USDD is promoted as a blockchain-agnostic stablecoin that can work on Tron (TRX), Ethereum (ETH), BNB Chain and other networks. Its 1:1 revival against the price of the US Dollar is guaranteed by the Peg Stability Module (PSM), a special exchange tool of TRON DAO.
Best Stablecoins to Watch in 2023: Stablecoins pegged to EURO
Stablecoins pegged to the Euro, the currency of the EU and some other European countries, are still underrepresented in the segment. Here’s how Web3 teams are addressing this discrepancy.
Circle Inc. by Euro Coin (EUROC) introduced in Q3 2022. Since Circle is the issuer of the major USD Coin (USDC) stablecoin, it has extended the 100% guarantee design of its new product. However, EUROC is fully backed by Euros held in Euro-denominated bank accounts at regulated institutions.
Euro Coin (EUROC) has been launched on the Ethereum (ETH) blockchain. By the end of 2022, it has already been integrated by major CEXs (Bitmart, BitPands), DEXs (Curve Finance, Uniswap), payment processors (BitPay) and on-chain wallets (Legder, MetaMask).
EURT (also EURt or Euro Tether) is a stablecoin pegged to the Euro by Tether Limited, the creator of USDT. It was launched in 2020. Meanwhile, it has not yet become mainstream: its supply is limited to 400 million euros per Ethereum (ETH).
Stabilcoin is fully backed by Tether Limited reserves. Currently, it is only listed by the Bitfinex exchange. At the same time, in December 2022, Tether also announced that EURt was coming to Huobi.
Launched in mid-December 2022, EUROe is the first attempt to develop an EU-regulated stablecoin denominated in the Euro. EUROe is the brainchild of Helsinki-headquartered Web3 infrastructure firm Equilibrium Labs.
Stabilcoin will be launched on the mainnet in the 1st quarter of 2023. Once launched on the mainnet, it will be fully compliant with the much-criticized Markets in Crypto Assets regulation (MiCA), the most stringent regulatory framework for digital assets ever.
Top Stablecoins to Watch in 2023: Exotic Assets
To conclude our review, let’s focus on two unusual stablecoins that are not pegged to the US Dollar or the Euro.
Tether Gold (XAUT) is an advanced multipurpose stablecoin backed by physical gold. Its issuer, Tether Limited, touts the asset as a “safe haven” amid rising market volatility for both digital and fiat currencies:
Since ancient civilizations, people have used gold as money and a store of value. Since then, gold has been used as a hedge, especially during times of general macro market distress.
With an equivalent market value of $443 million, Tether Gold (XAUT) reserves include 611 Gold bars or 7643.71 kilograms of physical Gold.
TrueUSD (issuer of TUSD stablecoin) together with TRON DAO launched TCNH, a stablecoin product pegged to Offshore Chinese Yuan. CNH is an offshore “version” of the Chinese Yuan (renminbi) and is therefore not governed by Chinese law.
¥＞$. There are few who understand.
— HE Justin Sun🌞🇬🇩🇩🇲🔥 (@justinsuntron) December 15, 2022
CNH is mainly used in offshore Asian forex markets including Hong Kong and Singapore. Unlike the “onshore” Chinese Yuan (CNY), its price is shaped by supply/demand dynamics, not government monetary policy.
In 2023, stablecoins will remain the backbone of the global cryptocurrency remittance segment. Decentralized stablecoins will dominate, while decentralized stablecoin products will increasingly introduce original technical concepts.