After Terra LUNA and UST collapsed, everyone has been asking which stablecoins are safe and which ones are heading to zero? To answer this question, we’ll rank the 12 most popular Stablecoins in a tier list. This list goes from S tier to D tier with S tier being the absolute best and D tiers being trash.
DAI is the crypto native stablecoin that was created by MakerDAO. It is the best-performing and the largest decentralized stablecoin out there. How it works is super simple you deposit collateral into Maker Vaults. It mints DAI for you and you can return that DAI to get your collateral back. It works with an over-collateralized model that can potentially liquidate you if the value of your underlying collateral drops too much.
DAI hold its peg through massive downtrends in the past. During the last bear market, when the value of Ether fell over 90%, DAI held its peg like a boss the entire time. It does this without relying on any centralized bank accounts.
Their model is an ultra-conservative approach and it’s not capital efficient at all. Your collateral is just sitting there not collecting any yield. One thing it could improve on is reducing its reliance on USDC because it does have a lot of USDC deposited in Maker vaults. If Circle ever wanted to freeze those funds, it could do so in a centralized manner.
We’re putting it in the S tier. DAI’s model is a battle-tested model.
USDC is fiat collateralized like Tether’s USDT.
USDC is way more legit than USDT for many reasons. First, their parent company is based in the U.S and has all the proper licenses and registration. Second, they undergo regular public audits of the reserves. Third, they recently came out and clarified that they hold 80% of their collateral and U.S treasuries and 20% in cash, so that is an incredibly safe approach. They don’t have any exposure to risky commercial papers. Fourth, the reserves are held in the top U.S financial institutions, so we don’t have to worry about some shady banks going belly up with all the collateral. Fifth, USDC was created by both Circle and Coinbase. Those two giant corporations are never going to let something bad happen to it. In fact, Coinbase recently merged all their USDC and USD order books, so that was a huge vote of confidence because it basically said that they see USDC as identical to USD.
There were some concerns that a circle bankruptcy would mean that they could keep USDC’s collateral, but a representative came out and refuted that. One criticism that does have some truth is that they are incredibly centralized. The USDC smart contract gives them the ability to freeze tokens and they’ve actually used that in the past. So it’s by no means decentralized nor permissionless.
We’re still putting it in the S tier. For now, it’s just too safe, too useful and too widely adopted.
Tether USDT is by far the biggest and most popular stablecoin out there.
They have a doxxed team that keeps a pretty public profile. It’d be absolutely stupid of them to do something with Tether that could get them thrown in jail. They have all the incentives to take a more conservative approach and still make decent money but without the risk of getting in trouble. Coinbase made a huge move in early 2021 when they added Tether to their exchange. Think about it, Coinbase has an army of lawyers, so with all the FUD surrounding Tether, you can be sure that they did their due diligence before making that decision. Recently there were some rumors that tether was holding risky commercial papers from Chinese or Russian entities that could default. That’s quickly becoming a non-issue as Tether reduces its commercial paper holdings all the way from 20 billion in May to 3.5 billion by the end of July. All these concerns are getting addressed.
USDT is centralized and we can’t tell for sure if Tether is fully backed or not. For the longest time, they claimed that they were backed one-to-one by U.S dollars but they later changed that to include a mix of cash, bonds, commercial papers, etc. They’ve also never done a real public audit before, which would pretty much end all the rumors if they did one and confirmed their backing.
We’re giving USDT an A rating.
Binance’s stablecoin BUSD is made from a collaboration between finance and PAXOS and it kind of just has the Binance name for branding purposes.
BUSD is completely backed one-to-one by U.S dollars held in PAXOS-owned U.S bank accounts. They’re actually one of three stablecoins that are approved by Wall Street regulators which are super strict in terms of what they allow. They do have regular audits and everything is done by the book. They have an incredible daily volume of 5 billion dollars. Of course, Binance has a lot of incentive to make sure BUSD succeeds because it does have their name on it after all. That’s why they’re offering pretty great yields of up to 13% APY if you stake BUSD on their exchange.
BUSD is completely centralized.
We give it an A tier rating.
FRAX combines both DAI and UST’s model. It takes a hybrid approach because you can mint FRAX by putting it in both UDSC and FXS which is their version of Luna. The ratio of UDSC and FXS depends on the collateral ratio. Sometimes you have to put in more UDSC and other times more FXS. FRAX literally stands for fractional algorithmic, so it’s not a full algorithmic stablecoin because it does have some hard collateral backing it.
FRAX is innovative and it’s held its peg decently. Their protocol owns a lot of Convex tokens that give them the power to direct Curve liquidity towards their stablecoin pool with DAI, UDST and USDC. This is amazing for a young stablecoin like FRAX because joining a pool with those established players can help smooth out its volatility.
One issue with FRAX is that they are trying to be a decentralized and permissionless stablecoin. However, with such heavy reliance on USDC, they’ll always run the risk that their collateral could be frozen one day for whatever reason.
We’re gonna put FRAX in the B tier.
TrueUSD or TUSD is a fully backed stablecoin created by Trust token. All their reserves are held in FDIC-insured bank accounts.
This was actually the first stable coin with real-time audits. They do on-chain Proof of Reserves. TUSD has a good amount of volume and over 1 billion in circulating supply. It’s been out since 2018 and has held its peg fairly well for four years now.
It’s a centralized stablecoin and it’s not as big as the other ones.
We put it in the B tier.
USDD is Tron’s native stablecoin. Justin Sun decided to make this because he was impressed by Luna and UST’s growth – before it all collapsed. USDD will have an on-chain swap just like Luna and UST did, but that’s actually in phase four of their road map and they just started phase one recently.
As of right now, USDD is just a boring over-collateralized stablecoin.
It just doesn’t have a strong value proposition. There’s no swap mechanism and hence there’s no risk of a death spiral. They’re also super centralized right now. In order to swap TRX for USDD, you have to be a white-listed institution and there’s currently no way to go back from USDD to TRX.
With all that in mind, we give it a C.
Cardano’s stablecoin Djed is an algo stablecoin. In this case, Djed is the StableCoin while Shen is the ReserveCoin. Both Djed and Shen are going to be backed by pools of ADA and if the price of ADA drops, some ADA will be moved from the Shenpool to the Djedpool to keep it topped up.
Basically, there’s a 400% buffer that supports Djed’s peg. They also coded in a lower bound and upper bound for the price of Djed on their unchained swap, so the price literally cannot go outside that range. When you’re using that swap mechanism, the theory is that “there’s no incentive to trade outside that range off-chain”.
However, people can just trade it off-chain at lower prices and not touch the on-chain mechanism until the price goes back inside that range. They also claim that their formal verification and their Math proofs have solved all the issues plaguing algo stablecoins. But do you really buy that though? It remains to be seen if their model will succeed where others have failed.
We give it a C for now.
Alchemix USD or ALUSD is a stable coin born in the DeFi world that’s quite different from all the other ones we’ve seen so far. It’s part of the Alchemix protocol that lets you deposit collateral and take out a loan in their stablecoin. That sounds similar to MakerDAO and DAI, right? But the big difference here is that Alchemix never forces liquidates ever because the collateral you deposit will sit there and generate yield and that yield is used to slowly pay off your loan.
It’s the first self-repaying loan we’ve ever seen in DeFi and you’re essentially getting an advance on your future yield. One thing to note is that they do cap the amount of ALUSD debt so you can’t just come in and mint as much as you want. They are increasing that cap slowly to 200 million though because there is growing demand.
While it is innovative, it barely has any volume and it needs more usage
We have to give it a C.
MIM (Magic Internet Money)
What a name for a stablecoin. MIM is a stablecoin this is part of the Abracadabra money protocol where you can deposit interest-bearing tokens from Yearn, Curve or Sushiswap and then borrow the MIM stablecoin against that collateral. It’s similar to Compound and Aave but in this case, you can mint a liquid asset – aka the MIM stablecoin from an illiquid one – aka those yield tokens.
MIM has held its peg fairly well. Even though at a significant exposure to UST, their liquidation engine was able to handle that properly. It’s not an algo stablecoin after all so it won’t death spiral like many people think it will. It’s backed by over-collateralized debt positions, many of which are generating yield while they sit there.
It’s mostly for DeFi degens to do crazy strategies with. Besides, this project doesn’t have a great reputation because its founders have close ties with the infamous Sifu remember. Sifu was outed as a co-founder of that shady Canadian exchange Quadriga that lost millions in customer funds.
We’re giving it a C.
USN (Near Protocol)
USN by near protocol has a complete re-design after Luna’s collapse. It used to be very similar to Luna’s UST model with an on-chain swap between Near and USN. One key difference was that each USN would initially be double collateralized which means that it would be backed by one USDT plus one dollar worth of NEAR. Now they released USN version 2.0 which is quite different from that model. They pointed out that too many stablecoins were struggling so they decided to ditch their 1.0 model to build something extremely resilient to all the volatility that could come.
This 2.0 version will be one-to-one backed by USDT. It’ll also get a sustainable yield from the staked NEAR that’s already in the reserve fund. They will potentially add non-stablecoin assets back into the mix in the future once the market recovers and we enter the next bull market. They still have their on-chain swap but it’s between USN and USDT instead of USN and NEAR. You can only mint and redeem USN with another stablecoin asset.
The new model is pretty conservative. It will stay stable but it has a short track record and it’s not particularly interesting.
We give this a C.
USDN or Neutrino USD is the algo stablecoin made for the Waves blockchain. You can swap one USDN for one dollar worth of Waves and vice versa. That’s why it lost its peg several times in the past but then it was able to regain its peg even though it dropped all the way down to 74% at one point in time.
It’s not the same as Luna and UST. The system doesn’t let you mint an unlimited amount of Waves. It’s limited to the amount that people sent to the smart contract. When they minted USDN, the yield that they offer for holding USDN is much more sustainable because it’s passed through from the Waves staking rewards.
they make it difficult to exit USDN. You have to buy and stake this third token called NSBT in order to even access that USDN and Waves swap. They kind of force you to participate in the system and help prop it up in order to even try to exit. There’s a reason why NSBT markets don’t exist outside the circular markets of Waves and USDN. If there were open markets, it would lead to collapse.
We’re giving this a D.
There is it, the TOP Stablecoins ranked from best to worst. The S tier should not fail you. We hope this ranking will help you make your own decision on which stablecoins to hold on to.