What is a Stablecoin?

Stablecoins are a type of cryptocurrency that are backed by an asset and designed to maintain a stable value. They have become increasingly popular in recent years, as they offer investors a way to limit their exposure to volatile markets.

The most commonly used stablecoin are US dollar-backed stablecoins like USD Coin (USDC) Tether (USDT) and Binance USD (BUSD). But with so many different stablecoins on the market, it can be difficult to decide which one is safest and most reliable.

Top 5 Stablecoins
Stablecoin Market Growth and Top 5 by Market Cap.

What factors make a Stablecoin safe?

The primary concern when selecting a stablecoin is ensuring that the company issuing the stablecoin is regulated and keeps the token backed 1:1 by real dollars that are in secure vaults. In order to this, stablecoin issuers need to provide monthly audits and transparency reports to demonstrate proper reserves.

Beyond that, other factors to consider include the network’s security measures, transaction fees, and user-friendly interfaces.  

Top 3 Safest Stablecoins (USDC vs BUSD vs USDT)

The three safest stablecoins to use in crypto finance are:

  1. USD Coin (USDC): Safest overall - backed 1:1 and regulated in New York which has the most rigirous auditing and licensing requirements for stablecoin issuers.
  2. Binance USD (BUSD): The best alternative to USDC. Issued by Paxos Global who are also based in New York. Extra counter-party risk here so overall less safe than USDC.
  3. Tether (USDT): The third safest stablecoin. Based in the United States also, but lack transparency over the reserves backing USDT.

Why is USDC the safest Stablecoin?

USDC was created by Circle Internet Financial, a licensed and regulated financial services company. This makes them one of the most trusted stablecoins in the digital asset industry. Furthermore, they are backed 1:1 by US Dollars and short-dated US Treasury bills held at approved banking institutions, so users can rest assured that their tokens are backed by real dollars.

Finally, USDC complies with all anti-money laundering and know-your-customer regulations, ensuring the highest level of security for users. With these measures in place, USDC is one of the safest stablecoins available on the market today.

USDC Reserves
USDC Stablecoin Reserves.

Safest platform to earn yield on Stablecoins

The safest platform to earn yield on stablecoins is a decentralized finance application. This is because centralized lending platforms lack transparency and have a history of collapsing and losing customer funds due to bad internal practices (e.g FTX, BlockFi and Voyager).  

Decentralized finance applications, on the other hand, use smart contracts to create a trustless environment where users can lend stablecoins with confidence. This means that yield earned on these platforms is much more secure and reliable than centralized alternatives.  Some of the most popular decentralized lending apps today are MakerDAO, Compound and Aave.

Final Thoughts

Stablecoins are an essential part of the crypto finance ecosystem, and it is important to choose one that is safe and secure. USDC stands out as one of the safest stablecoins available due to its strict regulatory compliance, 1:1 backing and transparency reports.

If you want to earn yield on your stablecoin holdings, then a decentralized finance application is the safest and most reliable way to do so. With these applications, users can earn yield without worrying about their funds being lost due to internal mismanagement.  Ultimately, when selecting a stablecoin or platform to invest in, safety should always be your main priority.