Top Types of Stablecoins You Need to Know in 2024

Stablecoins are a type of cryptocurrency designed to minimize volatility by being pegged to a reserve of assets, often a specific fiat currency like the US dollar. Find out all about the different types, use cases, and benefits of stablecoins.

The volatile crypto market can both allure and deter investors, but stablecoins emerge as the anchor in this tumultuous sea. As digital currencies pegged to a stable asset, such as fiat currencies or gold, stablecoins blend the innovative allure of cryptocurrency with the reliability of traditional financial mechanisms. This guide embarks on a journey to demystify stablecoins, illustrating their functionality, significance, and the varied types reshaping the financial landscape in 2024.

At their core, stablecoins aim to offer the best of both worlds: the efficiency, transparency, and security of blockchain technology minus the wild price swings typical of cryptocurrencies like Bitcoin. They achieve this balance by tethering their value to more stable assets, ensuring that for every stablecoin issued, there is a corresponding asset in reserve, be it a US dollar, Euro, or even gold. This mechanism provides a safe harbor for investors and users seeking stability in the digital currency space.

How Do Stablecoins Work?

The stability of these coins is not by chance but by design, with each stablecoin employing one of several methods to maintain its peg. The most common approach involves holding reserves of the asset to which the stablecoin is pegged, providing a direct correlation in value.

Alternatively, algorithmic stablecoins regulate their supply based on market dynamics, expanding or contracting issuance according to demand, thereby stabilizing value through smart contract protocols.

The volatility of cryptocurrencies like Bitcoin can make routine transactions risky for buyers and sellers. Stablecoins address this challenge by providing a medium of exchange with relatively stable value. Businesses and consumers can transact without fearing sudden and substantial price changes, fostering confidence in using cryptocurrencies for everyday purchases.

Trade the best stablecoins on the KuCoin spot market.

Type	Backed By	Examples
Fiat-Collateralized Stablecoins	Fiat currencies (e.g., USD, EUR)	USDT (Tether), USDC (USD Coin), TUSD (TrueUSD)
Crypto-Collateralized Stablecoins	Other cryptocurrencies	DAI (MakerDAO), sUSD (Synthetix)
Commodity-Collateralized Stablecoins	Physical commodities (e.g., gold, oil)	PAX Gold (PAXG), Tether Gold (XAUT)
Algorithmic Stablecoins	Algorithmic mechanisms	Ampleforth (AMPL), Ethena USDe (USDe)

Stablecoins come in several varieties based on their underlying mechanisms for value stabilization. Primarily, the two types of stablecoins are fiat-backed and crypto-backed stablecoins. However, we can divide this further into four types:

Fiat-Collateralized Stablecoins: The most straightforward and prevalent type, these stablecoins are backed one-to-one by traditional currencies held in reserve. Their simplicity and direct correlation with fiat currencies make them a cornerstone in the world of DeFi and beyond. USDT, USDC, BUSD, GUSD, and PAX are some of the common fiat-backed stablecoins.
Crypto-Collateralized Stablecoins: Offering a twist, these stablecoins are backed by other cryptocurrencies. While they maintain the essence of being decentralized, they often employ more complex mechanisms, like over-collateralization, to counteract the volatility of their reserves. MakerDAO’s Dai (DAI) and Reserve Rights (RSV) are popular crypto-backed stablecoins.
Commodity-Collateralized Stablecoins: Pegged to tangible assets like gold or oil, these stablecoins appeal to those looking to hedge against fiat inflation or to invest in commodities digitally. Popular examples of these stablecoins include Tether Gold (XAUT) and Pax Gold (PAXG).
Algorithmic Stablecoins: Devoid of tangible collateral, these stablecoins rely on algorithmic mechanisms to control supply and demand, aiming to maintain their peg through smart contracts instead of reserves. Following the crash of TerraUSD (UST) stablecoin, other popular algorithmic stablecoins existing in the crypto market include USDD (USDD), Frax (FRAX), and Ethena USDe (USDe).

Here are some of the most popular stablecoins in the crypto market:

Tether (USDT)

USDT Dominates the Stablecoin Market | Source: CoinGecko

Tether (USDT) remains a dominant force in the stablecoin arena as of 2024, maintaining its position as the leading stablecoin by market cap, share, and liquidity. It's widely recognized for providing a stable digital asset for trading, offering the advantages of low-cost, secure, and instant transactions while ensuring price stability against the US dollar. As a testament to its influence, Tether's market cap has surpassed $104 billion, reinforcing its role as a key player in the cryptocurrency market.

Tether assures the backing of USDT's value through a reserve of diverse fiat-backed assets. Despite facing scrutiny in the past regarding the transparency of these reserves, Tether has made strides to enhance trust among users by disclosing this information publicly and undergoing independent audits. USDT's versatility is also highlighted by its presence across multiple blockchain ecosystems such as Ethereum, TRON, EOS, Algorand, Avalanche, and Solana, allowing for broader accessibility and utility.

Tether invested $618 million in Bitcoin in Q1 2024, acquiring 8,889 units. With over 75,000 BTC holdings, Tether is now the seventh largest Bitcoin holder globally. As of April 2024, Tether enjoys a market cap of over $105 billion, making it the largest stablecoin and the third-largest cryptocurrency by market cap.

In April 2024, Tether collaborated with the TON Foundation to launch $60 million of USDT on The Open Network (TON) blockchain, boosting TON to the 11th spot among the 16 blockchains supporting Tether. This partnership also introduced the gold-pegged Tether Gold (XAUT) stablecoin on the TON ecosystem, advocating for cross-border payments as smooth, instant, and as simple as sending a direct message on Telegram to its vast user base of 900 million.

USD Coin (USDC)

USD Coin (USDC), managed by the Centre Consortium—a collaboration between Circle and Coinbase—stands out in the crowded stablecoin market due to its stringent adherence to transparency and regulatory compliance. It guarantees users the ability to exchange 1 USDC for $1, backed by verifiable dollar-denominated reserves consisting of cash and short-term US Treasury bonds. This claim to stability is validated by major accounting firms that verify the matching levels of cash held in reserve with the tokens in circulation, providing users with the confidence to trade, invest, or hedge with USDC.

As of 2024, USDC's market capitalization has been reported at approximately $32.91 billion, highlighting its position as the second-largest stablecoin and the sixth-largest crypto by market cap. This is a significant indicator of its widespread adoption and trust within the crypto community. The circulating supply of USDC is about 32.91 billion tokens, pointing towards a healthy demand and a robust ecosystem around this stablecoin.

USDC's utility extends beyond just a stable digital currency; it serves as a bridge for U.S. dollars onto the blockchain, facilitating a seamless transactional experience across various decentralized finance (DeFi) platforms and services. It operates on multiple blockchains, including Ethereum, Avalanche, TRON, Stellar, Solana, Algorand, Flow, and Hedera, showcasing its flexibility and the broad range of applications it supports. Moreover, USDC's connection with major financial institutions, like BlackRock and BNY Mellon, emphasizes its commitment to bridging the gap between traditional finance and the digital asset world.

Dai (DAI)

Dai (DAI), established by MakerDAO, distinguishes itself in the stablecoin arena through its decentralized governance and operation on the Ethereum blockchain. Managed by the Maker Protocol and the MKR token, DAI's stability is maintained by smart contracts, with its value pegged to the U.S. dollar. This system ensures transparency, as all issuance and burning of tokens are recorded on the blockchain, allowing the community to participate directly in governance decisions through MKR tokens. This model ensures decisions such as changes to DAI's interest rate and collateral types are community-driven.

DAI's broad adoption has been integrated into over 400 applications and services. Its market cap has been reported to be around $5.34 billion, making it the third-largest stablecoin by market cap. This broad adoption is supported by its role in the DeFi sector, where it's favored for its stability and trustworthiness in a volatile market. Moreover, the MakerDAO community has been active in diversifying and securing the collateral backing DAI, thereby enhancing its stability and reliability as a digital dollar. The governance model of MakerDAO, where MKR token holders vote on critical decisions, exemplifies the decentralized and democratic ethos of the crypto space.

First Digital USD (FDUSD)

Introduced in June 2023, First Digital USD (FDUSD) is a relatively new entrant in the stablecoin market. FDUSD is issued by Hong Kong-based First Digital Group on Ethereum and BNB Chain blockchains and will expand to other blockchains in the future. Unlike some other stablecoins, FDUSD is redeemable for USD, so users can exchange their FDUSD for physical USD, enhancing its credibility.

FDUSD's launch coincided with the implementation of crypto regulations in Hong Kong, signifying its compliance with regulatory standards. As of early April, FDUSD enjoys a market cap of just under $2.5 billion, making it the fourth-largest stablecoin by market cap. Its surge in popularity was driven by Binance’s announcement to halt support of Binance USD (BUSD) stablecoin following regulatory concerns.

Reserve (RSV)

Reserve (RSV) stands out in the stablecoin sector, representing a novel approach to combating inflation and hyperinflation through a crypto-backed mechanism. As part of the Reserve ecosystem, the Reserve Rights (RSR) token plays a pivotal role in establishing a decentralized banking infrastructure aimed at regions suffering from economic instability. The Reserve project is ambitious, aiming to provide a stable, decentralized, and asset-backed digital currency. It envisions creating a universal store of value, especially in regions with unstable banking systems or where inflation runs rampant. The ecosystem is built around three types of tokens: the Reserve token (RSV), a stable cryptocurrency; the Reserve Rights token (RSR), which facilitates the stability of RSV; and various tokenized real-world assets that back RSV, ensuring its value.

As of the latest updates, the Reserve stablecoin (RSV) has seen its market cap reaching approximately $48.9 million, securing the #663 spot in terms of market capitalization. It maintains a circulating supply of about 28.85 million RSV coins. Despite its innovative approach and the backing from prominent venture capitalists such as Peter Thiel and Sam Altman, Reserve's market position reflects a niche but significant impact within the stablecoin landscape.

Frax (FRAX)

Frax (FRAX) represents a significant evolution in the stablecoin landscape, combining both collateralized and algorithmic mechanisms to maintain its peg to the US dollar. Launched in 2020 by Frax Protocol, FRAX has introduced a novel "fractional-algorithmic" approach, setting it apart from purely collateralized stablecoins like DAI and algorithmic stablecoins without collateral. This hybrid model adjusts the collateralization ratio based on the market's confidence in the stablecoin, aiming for scalability, decentralization, and a stable on-chain currency.

As of the latest data, FRAX boasts a market capitalization ranking at #7 among stablecoins, with a valuation of approximately $646 million and a circulating supply nearing 650 million FRAX. The stablecoin has maintained its peg closely, with slight fluctuations but generally staying near the $1 mark. The Frax Protocol stands out for its unique governance model, which leverages Frax Shares (FXS) as a governance token. This model allows for a community-driven approach to protocol updates and decisions, reflecting a commitment to decentralization.

DecentralizedUSD (USDD)

Decentralized USD (USDD), the stablecoin issued by the TRON DAO Reserve, is making waves in cryptocurrency for its unique approach to maintaining stability. Pegged to the US dollar, USDD is backed by various cryptocurrencies, including Bitcoin, Ethereum, and TRON, with an over-collateralized reserve ensuring its stability and security. The stablecoin can be utilized for a range of blockchain transactions, including payments, trading, and staking, showcasing its versatility within the crypto space. At the time of writing, USDD is the sixth largest stablecoin by market cap, with a market capitalization exceeding $726 million.

Justin Sun, the founder of TRON, launched USDD on May 5, 2022, marking TRON's foray into the decentralized stablecoin domain. The project's uniqueness lies in its issuance and redemption process, managed via smart contracts on TRON, facilitating transparent and secure transactions. This approach, coupled with the decentralized governance model overseen by the TRON DAO Reserve, sets USDD apart from other stablecoins. The reserve acts as a principal custodian, aiming to protect the Tron ecosystem against economic downturns and maintain a stable exchange rate for USDD.

Tether Gold (XAUT)

Tether Gold (XAUT) is a noteworthy addition to the stablecoin arena, offering a unique commodity-backed asset that ties the cryptocurrency world with physical gold. Each XAUT token represents one troy fine ounce of physical gold held in reserve, with the gold adhering to the London Good Delivery standard. This innovative approach offers investors the safety of gold with the flexibility and accessibility of a digital token, making it a compelling option for those looking to diversify their portfolio with precious metals.

As of the latest updates, Tether Gold has a market cap of approximately $562.5 million, ranking it #8 among stablecoins. It boasts a circulating supply of about 246,000 XAUT tokens. The token's price recently reached an all-time high of $2,287.62, indicating a growing interest and trust in this digital asset as a stable and valuable investment. Tether Gold stands out for its easy divisibility, transportability, and 24/7 trading capabilities, overcoming some of the traditional challenges associated with physical gold investments. Additionally, it offers easy redemption for physical gold, ensuring investors can always access the underlying asset if desired. This makes XAUT not just a speculative tool but a practical solution for digital gold ownership.

Pax Gold (PAXG)

Pax Gold (PAXG) presents a compelling fusion of traditional gold investment with the flexibility of blockchain technology. Each PAXG token equates to one fine troy ounce of a London Good Delivery gold bar, stored securely in professional vault facilities. This digital asset, introduced by Paxos Standard in September 2019, aims to democratize gold investments by making them accessible in infinitely small amounts through cryptocurrency. Charles Cascarilla, a seasoned finance professional, is the visionary behind PAXG, leveraging his extensive experience to bridge the gap between gold and digital assets.

PAXG's unique proposition lies in its backing by physical gold, offering investors a tangible asset with the liquidity and divisibility afforded by digital currencies. Unlike traditional gold investments, PAXG holders can enjoy lower costs with no storage fees and the assurance of regulated custodianship. It's available for trading on several exchanges, including Binance, BitZ, and Kraken, providing investors with a liquid market for gold-backed digital assets. The token’s price has seen fluctuations, with its value influenced by the real-time market price of gold, ensuring that investments in PAXG are grounded in the physical gold market's performance. As of early April 2024, PAXG has a market cap of over $417 million and is the 10th largest stablecoin by market cap.

In addition to the list of established stablecoins mentioned above, the crypto market has seen several new stablecoins launching recently, including:

Ethena USDe (USDe)

Ethena's USDe is a synthetic dollar designed to innovate within the DeFi space by leveraging Ethereum to create a yield-bearing asset. Unlike traditional stablecoins, USDe is backed by Ethereum (ETH) and utilizes delta hedging to ensure its stability against the dollar. This innovative approach aims to provide a scalable, stable, and censorship-resistant alternative to traditional finance mechanisms. By combining yields from the derivatives markets and staked Ethereum, Ethena introduces the Internet Bond as a novel financial instrument designed to democratize investment opportunities and savings concepts. With its unique backing and stability mechanisms, USDe represents Ethena's ambition to create a more accessible financial system, making it an interesting addition to the stablecoin ecosystem.

PayPal USD (PYUSD)

PayPal USD (PYUSD) is PayPal's venture into the stablecoin arena, pegged 1:1 with the US dollar and backed by a mix of dollar deposits, US Treasuries, and cash equivalents. Designed to integrate seamlessly with PayPal's digital wallet, PYUSD facilitates not only the traditional buy and sell functions but also transfers and payments within the PayPal ecosystem and to Ethereum wallet addresses. This initiative reflects PayPal's strategic move towards enhancing crypto-based transactions, offering its users a stable, secure, and versatile digital currency option. At the time of writing, PYUSD has a market cap of over $190 million and is the 12th largest stablecoin in the crypto market.

Learn all about PayPal USD (PYUSD) stablecoin here.

Euro Coin (EUROC)

Euro Coin (EUROC) is another recent entrant in the stablecoin market. EUROC was announced by Circle - the issuer of USDC, in May 2023. The Euro-backed stablecoin is entirely backed by Euros, making it fully redeemable at 1:1 for EUR. As of August 2023, this Euro stablecoin is available on Ethereum and Avalanche blockchains.

Djed Stablecoin

Another example among the newer stablecoins that gained considerable attention at launch is Cardano’s Djed stablecoin. As of April 2024, it has a market cap of over $3.9 million, and it ranks 1,936 in terms of market cap.

Share of Total Stablecoin Supply on Ethereum | Source: The Block

Stablecoins offer a range of benefits that contribute to their rising popularity:

Price Stability: Their main advantage lies in their ability to offer price stability. By anchoring their value to stable assets, stablecoins can be used reliably for daily transactions and financial activities without the fear of sudden price swings.
Hedge Against Volatility: Stablecoins serve as a critical tool for hedging against the inherent volatility of the cryptocurrency market. They allow users to quickly move assets into a more stable medium, protecting their value during market downturns.
DeFi Integration: A cornerstone in the decentralized finance ecosystem, stablecoins enable a wide range of financial services without the need for traditional financial intermediaries. They're extensively used in lending protocols, yield farming, and as collateral in various DeFi platforms.
Global Accessibility: By transcending geographical barriers, stablecoins facilitate borderless transactions, offering financial inclusion to those without access to conventional banking services.
Passive Income Opportunities: You can generate passive income on stablecoins using platforms like KuCoin. Through lending and other DeFi practices, holders can earn interest over time, enhancing the utility and attractiveness of stablecoins.

As of April 2024, the stablecoin market is vibrant and diverse, featuring over 160 stablecoins with a total market capitalization surpassing $151 billion. This dynamic sector ranges from well-known options like Tether (USDT) and USD Coin (USDC) to innovative entries such as PayPal USD (PYUSD) and Ethena USDe (USDe), each catering to various needs and uses within the financial ecosystem.

Stablecoins have emerged as a cornerstone in the cryptocurrency realm, addressing the volatility concerns that have limited the broader adoption of digital assets. By anchoring their value to external references and employing innovative mechanisms, stablecoins offer a reliable medium of exchange and play a pivotal role in driving the adoption of cryptocurrencies for everyday transactions and financial activities. As crypto adoption grows worldwide, stablecoins will likely continue shaping the landscape and contributing to developing a more stable and accessible financial future.

1. What Was the First Stablecoin?

Introduced in 2014, Tether (USDT) is widely considered the first stablecoin in the crypto market. It aims to maintain a 1:1 peg with the US dollar.

2. What Is the Best Stablecoin?

Determining the "best" stablecoin depends on specific use cases and preferences. Some popular options include USDT, USDC, DAI, and USDD, each with unique features and mechanisms.

3. Are Stablecoins Regulated?

Stablecoins are gaining regulatory attention due to their potential impact on the financial system. While no standardized regulations exist, jurisdictions like Singapore have finalized rules for stablecoins, focusing on reserve backing and transparency.

The Monetary Authority of Singapore (MAS), which serves as the country's central bank, completed the establishment of a regulatory structure for stablecoins in August 2023. This framework mandates that regulated issuers must maintain the requisite reserves at hand.

4. Can Stablecoins Crash?

Stablecoins can risk crashing if they are not adequately backed, regulated, or managed. Instances like the collapse of algorithmic stablecoin UST have raised concerns about the stability of certain types of stablecoins.

5. Can Stablecoins Increase in Value?

Stablecoins are designed to maintain a stable value, often pegged to a specific currency like the US dollar. While their primary goal is stability, market dynamics and external factors can impact their value, causing fluctuations.