What is a Stablecoin? Tether, Dai and USDC compared

What is a Stablecoin ? A more than legitimate question for all those entering the world of cryptocurrencies, which presents a series of rather complex terms and dynamics. But, if the goal is to carry out operations in this sector, then one cannot really ignore these factors.

The goal of this article is to explain the dynamics behind the Stablecoins and then to compare Tether, DAI and USDC , going to see how they operate and the respective strengths or weaknesses of each of them. To do this, however, you have to start from the basics, and then go into the details little by little.

Before we begin, however, I want to emphasize that the world of cryptocurrencies (like any other financial sector), involves risks. My goal is to give you a smattering of technical stuff but none of the ones that follow want or need to be construed as financial advice.

Index

  • Stablecoin, what are they?
    • Tether (USDT)
    • USDC
    • Come on
  • How to buy Stablecoin

Stablecoin, what are they?

Let’s start with Stablecoins in general, then we’ll see the differences between the most important ones available on the market today. A Stablecoin is a currency that reflects the value of the fiat currency to which it is pegged, maintaining a constant ratio of 1 to 1.

Too complex? It is actually much simpler and more straightforward than it may seem. Let’s start with fiat currencies, that is the banknotes that you hold in your hands every day and that are used all over the world in normal transactions. This group includes the Euro , the Dollar , the Yen , and any other national currency present on the face of the earth.

The Stablecoins are their digital transposition, that is a cryptocurrency that maintains a ratio of 1 to 1 with the fiat currency that the creators have chosen. So a digital dollar will always have to be worth as much as a physical dollar, otherwise it would make no sense to exist such a Stablecoin.

But why use a crypto when fiat money exists? Simple, due to the fact that the world of cryptocurrencies moves too fast and on completely different tracks from those of traditional finance . On exchanges , people move billions of dollars in seconds, which goes badly with the dynamics of paper currency.

Imagine having to work with bank intermediaries every time you carry out a transaction, having to endure technical times , conversion costs , weekend closings and other problems typical of this sector. That would be great damage for a world that goes at a crazy speed and tries to operate in total autonomy.

Precisely the same autonomy that led to the decentralization of cryptocurrencies such as Bitcoin or Ethereum , which would once again find themselves entangled in traditional finance if they had to deal with banks for exchanges (for example from dollars to bitcoin).

This is the second reason why Stablecoins are fundamental , that is, operating on different tracks from those of banks, with greater flexibility without having to go through a central body that can do good and bad weather. Now that we have seen the basics, however, let’s go into the detail of the major digital currencies anchored to the Dollar (the others have little relevance at the moment).

Tether (USDT)

The first USD in importance and market capitalization is Tether , also known by the acronym USDT . To clarify, market capitalization indicates how many coins are in circulation multiplied by the value of the single unit, which gives a measure of how strong that asset is in the market. Greater capitalization, greater strength, greater importance, simple and straightforward.

Well Tether is the third largest cryptocurrency by capitalization general capitalization, just behind Bitcoin and Ethereum, which means being the most important stable in circulation, as well as a real reference point in the sector. The issuing body of the USDT is Tether, a company based in Hong Kong .

How does Tether work? Basically in a rather similar way to classic fiat money, that is, every single dollar issued in Tether has physical collateralization of some kind. What does it mean? That for each Tether the company has the equivalent in dollars , securities , bonds or any other asset which, if necessary, could be converted into fiat to satisfy the customer who needs to convert their assets into classic dollars.

A rather simple and effective system, but which has caused the company some judicial annoyance and also some not-so-happy rumors about it. The (unproven) theory is circulating in the industry that Tether does not actually have the capital to pay off every single dollar she has issued, so much so that it has been described as a scam on a macroscopic scale.

Of course I have no intention of adding fuel to this litigation, but I believe it is an important note that you need to know. Tether is an excellent currency for quick exchanges, it does not present any kind of problem for this but, holding it for the long term, exposes you to the risk associated with possible insolvencies. by the company. This is always provided that the rumors and accusations made so far prove to be well founded, which is absolutely not certain.

USDC

USD Coin is the second largest Stablecoin by capitalization on the market, just behind USDT but with a decent advantage over other competitors. Its system of operation is exactly identical to that of Tether , that is, it is anchored to the value of the dollar through collateralisation.

So same problems here too? No, as USDC is a currency regulated by the financial institutions of the United States (its headquarters are in the country of the stars and stripes) and has a much more solid collateral than Tether, which is made entirely of US dollars and treasury bills .

What does this entail? That the controls on this issuing body of the aforementioned Stablecoin are certainly more stringent than those who operate in a nation that is notoriously rather permissive from a financial perspective. To this it must be added that the collateral, at least according to what the company guarantees, is more solid than the one on which USDT rests. This makes USDC a currency that offers more long-term collateral , but here it’s all about personal valuations.

Come on

The Dai crypto is always a Stablecoin, but it has nothing to do with the two views previously, apart from obviously the fact that it maintains the 1 to 1 ratio with the Dollar. Dai is a coin based on a deposit system by users to create.

That is, to put it simply, if you want to borrow Dai, you have to provide the collateral by which this coin can be generated. Basically, if you want to take $ 1,000 worth of Dai, you’ll need to provide a minimum amount in another crypto of at least $ 1,500.

Minimum because you may also decide to deposit many more to always get the same loan, without a real limit which totally goes to your description. So why would anyone have to deposit more money to borrow the same amount? Doesn’t make sense, does it?

Instead, yes, since we relate to a volatile world such as that of cryptocurrencies. If you deposit 1 bitcoin (assuming Bitcoin is worth $ 15,000 at the time of lending) to borrow $ 10,000 in Dai, you will be subject to having to pay variable loan interest common to any lending mechanism on the planet.

To this, however, it must be added that, since Bitcoin is not stable, Dai wants guarantees that there is a safety margin to move in the event of changes in the value of the collateral. In short, if Bitcoin drops to $ 12,000, your loan can remain open and safe.

But when do problems arise? When the fluctuations go out of the safe range and Dai is forced to liquidate the loan , keeping the collateral paid plus a substantial penalty. So for this reason, it is better to deposit more funds and increase the margin that separates from the liquidation.

Dai is also one of the very few decentralized Stablecoins , meaning that it does not depend on companies like Tether, but is created entirely on the blockchain without the need for collateral or intermediaries. This makes it an alternative and a very important prospect for the future, as well as UST (Earth’s Stablecoin) that I told you about in the linked article.

How to buy Stablecoin

Now that you understand how Stablecoins work, are you looking forward to buying some to diversify your wallet? A shareable choice, although mine is not financial advice , so make sure you’ve done your math well and don’t let my words guide you.

That said, the exchange that I want to recommend for your cryptocurrency operations is Young Platform where, in addition to various Stablecoins , you can also buy the most famous cryptocurrencies such as Bitcoin , Ethereum , Luna , Cardano and many others in complete safety.

One of the great strengths of this platform is that it is completely Italian and regulated according to the laws in force in our country (as well as European ones). Money transfers then rely on two local credit institutions, such as Banca Sella and Banca Azzoaglio .

The systems are the same used by other financial giants such as JP Morgan Chase, Nasdaq, Goldman Sachs and others, all of which use the same Modulus technology technology while, for crypto custody, identity verification and on-chain analysis they rely on their partners: Fireblocks, Onfido and Chainanalysis.

To deposit your funds you can use the classic systems such as credit card and bank deposit , but you can also use Apple Pay / Google Pay and Satispay . That’s not all because, if digital is not your favorite tool, then you will be happy to know that you can also deposit your funds in cash by going to one of the shops and supermarkets that allow it (eg. Pam, Penny Market, Carrefour and Panorama).

Do you want to deepen your knowledge about crypto before taking action? Then the Young Platform Academy , the information portal on topics such as traditional finance, blockchain and cryptoeconomics, awaits you with its over 100 articles that can guide you towards learning about the various aspects related to this world. The Easy Economy section is then the arrival point for those who want to prepare themselves better and have a really thorough general knowledge on this topic. More details on the official page .

Finally, it should be mentioned Young Platform Step ( Android / iOS / iPadOS ), the app that allows you to win prizes in YNG tokens by completing simple daily activities or by answering quizzes. These tokens can then be exchanged for fiat currency or held for discounts on transactions within the Young Platform.

After the introductions, it’s time to see how to buy Stablecoin on this platform, by going through the various steps together. You can do them easily from the app for Android and iOS / iPadOS or by using the web page , in both cases they are very similar and equally simple.

I have decided to use the app, but feel free to take the route you prefer. In any case, once downloaded and opened, just press the Register button , then enter the data you are asked for, press the Continue button , enter the phone number and then press Continue again .

Now it is time to enter an email, password and to accept the terms of service and receipt of emails by Young Platform by ticking the respective boxes. At this point, press Continue , go to your e-mail and look for the message that the platform has sent you, then press the Confirm mail button to continue.

Now it is time to move on to personal data such as tax code and many others that the platform is obliged to ask in order to comply with current regulations . Once entered, press the Confirm button then state what are the purposes for which you are opening an account between sale, purchase and payments or both and prepare a personal document including passport , driving license or identity card .

Providing these documents is essential to meeting anti- money laundering regulations , so you don’t have to worry about them being misused or exposed to any kind of risk. Then take a photo of the chosen document and then take a selfie according to the procedures indicated by the app and you’re done, your account will be activated within a few days at the most.

Now that your account is active you can proceed with the purchase of Stablecoins, but first you must make a deposit of money into your account. To do this, from the Home screen, press the Deposit Now button and choose which method to use from the list that is proposed to you.

The transfer is completely free and requires a lead time of 2 to 5 days (instantaneous if done through Banca Sella), while the credit card has a cost of 2.2% (+0.25 cents.) On the amount. Transaction Amount. If you choose the cash deposit instead, the total commission will be 2%.

Once the money has arrived on the account, from the menu located in the bottom bar, tap on the Market item and then again on See all next to the word All assets . From here scroll down until you find the Stablecoin you are interested in, be it USDT, USDC or Dai and then tap on it.

Once you open the screen that contains all the information together with the price chart, just press the Buy button and then decide which slice of your wallet to allocate in the aforementioned currency, confirming the transaction with an upward swipe. You will always have an overview of your assets by going to the Portfolio section accessible from the bar on the Home screen. If you want to know in more detail how Young Platform works or the best crypto to buy, I leave you my tutorials.

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