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USDC, DAI, USDT, UST - What are they? (Stablecoins)

 USDC, DAI, USDT and UST are Stablecoins. 

What is a Stablecoin?

Stablecoins are cryptocurrencies like bitcoin, but with the objective to keep a stable price to be used as a medium of exchange or to maintain value in times of uncertainty.  These digital assets can also take advantage of infrastructure built out for cryptocurrencies (e.g. peer to peer quick transfers without the need of intermediaries).  All you need is an internet connection and now people can buy, store and transfer these digital assets pegged to the US dollar; opening up possibilities for developers to create new financial innovations anybody can access. 

Different Types of Stablecoins:

  • Token Backed with cash and cash equivalent

    • USDT (Tether) was the first and currently the largest stablecoin.  It is not issued and not regulated in the US.  There was a lot of controversy surrounding its treasury being fully backed by cash and cash equivalent assets.  Further, it is unclear if people can easily redeem their tokens for US dollars.

    • USDC (US Dollar Coin) is the second largest stablecoin issued by Circle, a US company, requiring the fund be regular audited by US approved accounting firms.  With this transparency, people can redeem their tokens easily for US dollars
     
    Both assets are run by companies that can and have historically frozen tokens of bad actors. 

  • Token Backed by non-dollar asset

    • DAI is a stablecoin collateral-backed cryptocurrency soft-egged to the US Dollar.  To create DAI, crypto assets are locked in a smart contract where the amount locked is larger than the amount available to be created by locking up digital assets.

    This token is decentralized and unbiased, meaning no individual can easily freeze assets

  • Token Backed by algorithmic incentives

    • UST (TerraUSD).  is stablecoin built on the Terra blockchain  The token has no explicit assets supporting the soft peg; but instead has a protocol to burn and create Luna (Terra) tokens to help support the peg.
        This token is decentralized and unbiased, meaning no individual can easily freeze assets

Stablecoin Comparison:


typical interest / yieldMarket Cap / Circulationpegged byOwnershipCan BlacklistUS regulated & audited
USDT8% - 15%$80 Billioncash and equivalentTetherYN
USDC8% - 15%$52 Billioncash and equivalentCircleYY
UST19% - 20%$15 Billionalgorithmic incentivedecentralizedNY
DAI8% - 15%$10 Billioncollateralized by cryptodecentralizedNY

Takeaway:

Stablecoins are interesting because of 2 main things: First, they offer very high attractive interest / yields compared to holding US dollars.  And Second, with cryptocurrencies becoming more adopted, they make a very accessible means of accessing, exchanging and storing savings where anybody with an internet connection can access and contribute to the growing digital economy.


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