Bybit Learn

Stablecoin

Keen on learning about the differences between USDT and FRAX? These are the best stablecoins that you can buy to avoid volatility or try your hand at staking.

Screenshot_2023-03-10_at_9.46.04_AM.png

Looking for a list of top stablecoins? You're in the right place. After the dramatic collapse of TerraUSD (UST) and the recent troubling buzz around Binance USD (BUSD), investors are becoming increasingly skeptical when it comes to an understanding of the actual stability of stablecoins. From being backed by actual dollars in a bank account to relying on a decentralized protocol, stablecoins exist in various forms. This comprehensive guide to the best stablecoins will explain what stablecoins are, the different types to watch for, and some examples of the top stablecoins in the crypto market. 

Stablecoins are cryptocurrencies that have their price pegged to, and are backed by, a singular reserve or group of assets. These price stabilization reserves can range from fiat currencies and national currencies to algorithms or commodities. 

If you're new to crypto, you might be wondering about the use cases of stablecoins. Their most common form of utility is as a medium of exchange. 

Altcoins or even Bitcoin can appear extremely volatile. Their values can wildly fluctuate because of huge inflows and outflows of funds. This can be cumbersome if you're looking to use your crypto as a medium of exchange. Thankfully, with stablecoins, the value of your assets can be preserved as they're meant to maintain their dollar-pegged value. This makes it easy for investors and traders to on-ramp their fiat and convert it into crypto, as the exchange can be made with minimal price volatility.

On top of being a solid medium of exchange, crypto enthusiasts also use stablecoins to participate in 

 (DeFi) projects that involve the lending or staking of stablecoins. Doing this provides investors with passive, low-risk yield as they provide extra liquidity on the platform. This ultimately makes staking or lending stablecoins a viable option for investors during periods of high volatility and/or bearish sentiments.

Now that we've covered the basics of what stablecoins are and their various use cases, let's move on to the different types of stablecoins in the crypto space.

What Are the Different Types of Stablecoins?

Fiat-backed stablecoins are, as the name suggests, pegged to a 

. Fiat currency is essentially not backed by a commodity and is issued by a government. These types of stablecoins typically have a reserve of an equal amount of fiat currency to which they’re pegged. For instance, USD Coin is a top stablecoin that’s largely backed by the U.S. dollar. Fiat-backed stablecoins can be used for transactions, just like other cryptocurrencies, and are considered more reliable.

In essence, these stablecoins are backed by a group of cryptocurrencies. By relying on another cryptocurrency as collateral, the average investor may understandably fear that the crypto-backed stablecoin will be highly volatile. To relieve these worries, such crypto-backed stablecoins are generally overcollateralized to make sure they maintain their value throughout periods of massive price fluctuations.

Unfortunately, UST's implosion has smeared the reputation of the best algorithmic stablecoins, despite solid examples like FRAX and DAI maintaining solid track records. Also called non-collateralized stablecoins, 

 do not have standard fiat or commodity collateral. These decentralized coins are made to help boost stability in market prices without connecting a central authority. Algorithms include special stabilization measures, which are hardcoded on Ethereum smart contracts for the stablecoins. To combat periods of volatility, the supply of algorithmic stablecoins is highly responsive to market forces.

On a more technical level, an oracle contract is used to assist these algorithmic smart contracts in execution. These contracts help by retrieving pricing information for algorithmic stablecoins on other exchanges. Following this, the price periodically enters a rebasing contract to determine if supply should increase or decrease. The contract then analyzes the number of tokens to mint or burn from user wallets based on the information gathered. 

Some stablecoin teams have gone one step further to make their algorithmic stablecoins partially collateralized. For example, FRAX is partially collateralized by fiat-backed stablecoin USDC and FXS, the Frax protocol's governance token.

Like fiat-backed stablecoins, these stablecoins are backed by external assets that aren’t cryptocurrencies. In this case, commodity-backed stablecoins are pegged to precious metals like gold. While commodities also fluctuate in price, they tend to hold value better in times of economic inflation than other forms of assets.

Commodity-backed stablecoins are useful for investing in assets that aren’t always easy to source in a nearby geographical location. For example, physically buying and storing gold can be expensive and inaccessible in many places. However, by purchasing commodity-backed stablecoins, investors can gain access to a tokenized form of rare metals.

In order to determine the best stablecoins, we must first understand what makes a good one. On a fundamental level, the best stablecoins must provide transparency in their holdings. Also, top stablecoins need to have a high trading volume so they can act as a liquid medium of exchange. These two factors combined provide a base on which to build confidence with investors, who can trust the stability of the stablecoin, knowing that it’s backed by a credible reserve of assets and that it can be easily exchanged with other stablecoins.

From UDSC to DAI, here are some of the best stablecoins you can consider including as part of your portfolio. 

If you're a crypto veteran, it's no surprise that 

 (USDT) tops our list of stablecoins. Originally known as Realcoin, the Tether stablecoin was officially released in 2014 and was one of the earliest stablecoins. It’s backed by multiple assets that include traditional currency and cash equivalents, ranging from bonds to commercial paper. While there have been rumors about how Tether isn't fully backed, the team recently made a move to publish 

In the past month (early 2023), 24-hour trading volume ranged between $18 billion and $50 billion, making it one of the top stablecoins if you're seeking a high-volume stablecoin. On some of the top sites for earning interest on crypto, investors can earn between 10% and 12.5% annual interest for USDT lending. While some investors have said that including more detailed reports would help, Tether's transparency regarding how it works and what backs it is positive. Tether plans to release a full audit to satisfy curious potential investors later in 2023.

BUSD is a collaborative project between Binance and Paxos, and is completely backed by U.S. dollars. These funds are also kept in Paxos-owned bank accounts in the U.S. Since everything is done by the book and is regularly audited, BUSD is one of the few fiat-backed stablecoins to be approved by Wall Street regulators. 

 that have led to a halt of BUSD trading on Coinbase, and it was eventually delisted from the crypto exchange titan.

Although BUSD’s trading volume has shrunk significantly, the 24-hour trading volume still shows a steady range from $6.8 billion and $10.2 billion. Another reason why BUSD is attractive is its interest yields. According to Binance, investors can earn up to 15% interest by lending out BUSD on its platform. This huge yield allows the stablecoin to pose a sizable threat to the likes of stablecoin giants like USDT and USDC.

 was founded by Danny An, Tory Reiss, Rafael Cosman and Stephen Kade in 2018 and gained attention because of its reputation as the first stablecoin with real-time audits and on-chain proof of reserves. To ensure each and every TUSD token is fully backed at a 1:1 ratio by the U.S. dollar, accounting firm 

 performs regular monthly audits to guarantee that TUSD is 100% collateralized. This makes it a solid centralized stablecoin to invest in if you're keen on passively staking stablecoins that emphasize regulation above all else.

During the past month, 24-hour trading volume numbers demonstrate steady growth that ranges between about $45 million and $90 million. In terms of yield, investors can earn between 10% and 12.3% interest on their True USD tokens on some of the top lending platforms.

, composed of multiple well-known figures in the crypto world. The coin launched in 2018 and became one of the top stablecoins because it offered an alternative to USDT. While Tether's holdings remained a mystery at the time, USDC provided proof of its backing by assets derived from the U.S. dollar. This transparency and stability gained from its fiat backing led to USDC taking the number two spot in terms of the amount of USDC being traded every day.

This past month, 24-hour trading volume numbers ranged between $1.9 billion and $4.9 billion. For stablecoin investors looking to earn a safe return, they can visit staking and lending platforms to earn between 6% and 14% interest for lending out their USDC.

However, the recent debacle of Silvergate and Silicon Valley Bank caused USDC stablecoin to depeg its dollar value with prices falling below $1. This causes concern among crypto advocates as more exchanges halt or suspend USDC trades. Still, only time will tell the sustainability of USDC. 

 stablecoin in 2017 when the mere idea of a crypto-backed stablecoin seemed risky and unrealistic. While DAI was originally created to provide a non-volatile lending asset for businesses and individuals, Maker eventually gave governance of DAI to MakerDAO. To quell fears of crypto-backed stablecoin volatility, DAI is overcollateralized with the use of Collateralized Debt Position (CDP) smart contracts. These Maker Protocol smart contracts allow users to lock up their collateral assets, such as ETH, in exchange for DAI. 

To crypto investors, DAI immediately stands out because it's backed by crypto assets rather than fiat dollars. If there were a sudden shift in Dai's value, investors could easily convert their DAI tokens to coins like ETH or WBTC because of the CDP smart contracts in play. Even after ETH's fall below $2,000 in the past few months, DAI has managed to maintain its peg because of its diversified reserves and overcollateralized nature. This makes it one of the best stablecoins in the market because DAI has shown its ability to withstand huge crashes. For reference, DAI's 24-hour trading volume numbers this past month fluctuated between $100 million and $308 million.

 is to provide an alternative to fiat-backed stablecoins that are too centralized. Reserve Rights was developed and launched in 2019 by an entity called the Reserve Project. As one of the top crypto-backed stablecoins, 

 uses baskets of contract-managed cryptocurrencies to maintain its peg. As part of its future plans to become one of the biggest and best stablecoins, Reserve Rights’ team plans to eventually leverage more than 100 low-volatility assets to offer more stability to investors. It's this focus on transparency, decentralization and multi-asset collateralization that makes RSV attractive to investors. 

The past month's 24-hour trading volume numbers ranged between $7 million and $11 million. Although the Reserve platform doesn’t specify an interest rate investors can earn for lending, there is a page that provides a detailed explanation of how 

Although it's one of the newer algorithmic stablecoins, 

 has stirred up quite a storm. After the infamous UST crash, 

 created this coin that retreads the same algorithmic ground while avoiding mechanisms that can contribute to a death spiral. The coin was launched on the TRON blockchain, and is pegged at a 1:1 ratio to the U.S. dollar. With over 50 million accounts already in existence, USDD is potentially shaping up to be one of the most popular stablecoins for investors as it slowly rolls out its mainnet launch plans.

In the past month, 24-hour trading volume numbers were between $20 million and $31 million. According to its creator, investors who stake on the platform may earn up to 30% interest. This ultimately makes it potentially one of the best stablecoins for generating passive earnings as well.

FRAX initially made headlines in 2019 as the world’s first fractional algorithmic stablecoin. The coin maintains its peg by making use of two reserves: Fiat-backed USDC, and FXS, the Frax ecosystem's native token. The ratio of USDC to FXS depends on the collateral ratio, which varies the amount of USDC and FXS needed to mint $1 worth of FRAX. This makes FRAX a partial algorithmic stablecoin, since it has fiat backing on top of its algorithmic backing.

Interestingly, the Frax protocol owns close to 20% of available CVX tokens. This allows its team to direct Curve Finance's liquidity toward their own stablecoin pool of DAI, USDT, USDC and FRAX. By joining hands with such established stablecoin players, FRAX manages to elevate its reputation as a stablecoin that's able to defend its peg in times of high volatility.

Within the past month, 24-hour trading volumes have been between $5 million and $19 million. Although it may not be one of the best stablecoins for earning high interest rates, it can earn investors about 5% interest on average.

Fei Protocol aims to maintain liquidity such that ETH and FEI trade similarly to ETH and USD. While it has a lower market cap than most of the top stablecoins on this list, 

 makes the cut because of its unique method of preventing depegging. Fei Protocol uses Protocol Controlled Value (PCV) instead of a total value locked (TVL) model. With PCV, Fei Protocol retains user-deposited funds permanently. This gives the protocol full authority to mint and burn FEI to maintain the $1 peg. To ease depegging fears, the protocol reweighs FEI at 4-hour intervals, with the minimum price difference below the fixed point being 0.5%. On top of using a PCV model, Fei Protocol also directly incentivizes the use of FEI by rewarding minting and trading.

Within the last month, daily trading volume totals for Fei USD have ranged between $1.1 million and $2.3 million.

Created by Paxos, PAX Gold is an ERC-20 token on the Ethereum chain. It was 

. Because of the Paxos brand behind the token, with its high transparency, PAXG has emerged to become one of the top commodity-backed stablecoins. It also helps that the government monitors and authenticates each PAXG token.

 in its reserves for each token, and it houses London Good Delivery gold bars. For investors looking to own a tokenized form of gold, PAXG offers a viable alternative.

The 24-hour trading volume numbers during the past month fluctuated up and down between $5 million and $14 million. This high amount of liquidity within the commodity-backed stablecoin market makes it one of the solid options you can look into.

To earn interest on any of the top stablecoins or cryptocurrencies, investors can use platforms like 

 for staking. On top of offering a competitive yield, Bybit offers the advantage of staking under both flexible and fixed terms. This gives investors the freedom and flexibility to pick a staking period that suits their risk appetite. 

 and get started on your passive income journey today.

 offers upgraded features and flexibility for participants to maximize their yields despite market volatility. Simply indicate your desired price to buy or sell your crypto assets based on the predicted market trend. You'll earn interest yields, regardless of your choice of market predictions, upon a predetermined settlement date. 

Decide on a base currency to start trading on the Bybit Spot or Derivatives market across thousands of asset pairs. Bybit offers a wide range of USDT, USDC and DAI-based crypto pairs as a base cryptocurrency that’s pegged with USD. Some of the popular crypto pairs include BTC/USDT, BTC/USDC, ETH/USDT, ETHUSDC, BITUSDT and more. 

Bybit is running a USDC zero-fee campaign on all USDC Spot pairs and on all stablecoin pairs, including USDC/USDT, BUSD/USDT, DAI/USDT and WBTC/BTC. Find out more about the 

10 Best Stablecoins to Look Into During Volatile Times (Updated)

Get your daily dose of crypto and trading info