- Stablecoins are said to be facilitators in cryptocurrency trading as their values are “stable”
- Tether has the highest trading volume among all cryptos, thanks to its wide use in trading other digital assets
- The recent episode where UST fell below US$0.8 has brought back fears around stablecoins' reserves
The total market cap of cryptoassets, according to CoinMarketCap, recently fell below US$1.4 trillion. It came as a shock for enthusiasts that were waiting for Bitcoin (BTC) to touch US$100,000. In contrast to this, BTC has not been able to sustain the momentum that took its price to nearly US$68,000 in 2021.
But it is not only the plunge of BTC that is making headlines. Bitcoin and most other native tokens like ETH can manifest upward and downward price movement, which is the inherent nature of virtually all tradable assets. It is the abrupt fall in the value of a stablecoin, TerraUSD or UST, which has many crypto enthusiasts worried.
What is a stablecoin?
For the uninitiated, the cryptoverse has a variety of digital assets, including Bitcoin, native tokens, non-fungible tokens (NFTs), and stablecoins.
Stablecoin is one category that is expected, if not mandated, to have stable price at all times. The value of any asset in this category is pegged to a mainstream and traditional asset like fiat currency. Most of the major stablecoins in the cryptoverse are pegged to the US dollar. And hence, their price mirrors the value of US$1. One crypto, GYEN, claims to be backed by the Japanese Yen.
The question is if stablecoins must have a stable value, matching the asset they are pegged to, why will anyone add them to the investment portfolio? The answer is stablecoins have found usage in trading of other cryptoassets. One can swap fiat currency for a stablecoin to trade in other cryptos like BTC. This, it is said, makes it easier for the investor and saves time and efforts in regularly converting fiat currency for crypto trades.
Top 3 stablecoins by market cap
1. Tether (USDT)
If BTC is the heart of the cryptoverse, Tether can arguably be called its second most important organ.
Many may not know that Tether’s 24-hour trading volume is always the highest among all assets, which corroborates USDT’s usage in trade of other cryptos. As of writing, Tether had a market cap of nearly US$83 billion, with almost the same amount of USDT tokens in circulation.
2. USD Coin (USDC)
Like other stablecoins, USD Coin also claims that the withdrawals would always be honored in the US dollar. Pegged to the USD, it had a market cap of nearly US$48 billion as of writing. Overall, it ranked 5th in terms of market cap, while Tether ranked 3rd.
3. Binance USD (BUSD)
Linked to the wider ecosystem of Binance crypto exchange, BUSD also has its peg to the USD.
The market cap as of writing was over US$17 billion, ranking it among the top 10 cryptoassets, and 3rd in terms of stablecoins.
Data provided by CoinMarketCap.com
TerraUSD (UST) fall
TerraUSD stablecoin has emerged as a perfect example of price volatility even in the stablecoin category. UST is also being blamed by many as one of the reasons behind Bitcoin’s recent fall below US$30,000.
It is said that TerraUSD, which uses Bitcoin as reserves to back the value of UST (pegged to the US dollar), liquidated a part of its BTC holding. This episode has shone the light on the shady nature of the reserves that stablecoins claim to hold to always honor withdrawals.
TerraUSD decline below US$0.8 was a reminder that even the so-called peg to the USD may not always be true in the cryptoverse. Stablecoins’ reserves are under scrutiny.
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