Are Stablecoins a Stable Investment? Study Reveals the Top 10 Best and Worst for Steady Returns on Your Money
If you feel you’ve missed the boat on investing in cryptocurrency, or just aren’t ready for such a risky and volatile investment, you might consider investing in stablecoins.
“A stablecoin is a digital currency that has its value tied or ‘pegged’ to that of another currency or commodity — oftentimes the U.S. dollar or gold,” explained Taylor Tomita, senior outreach specialist at NeoMam Studios. Coin Kickoff commissioned NeoMam to produce a study on the most and least stable stablecoins available today.
“Tying a stablecoin’s value to another currency tends to make its price less volatile, making them more suitable for common transactions and a more practical investment alternative to cryptocurrencies since they are less prone to wild fluctuations in price,” he added.
“In many ways, stablecoins are classic credit instruments,” said Lucas Kiely, chief investment officer at the digital wealth platform Yield App. “They allow users to conduct transactions based on the value of something else, in this case, a fiat currency, and typically the U.S. dollar. Each stablecoin has its own infrastructure and safety mechanisms, but effectively they mimic a currency in terms of nominal value and liquidity.”
If these traits seem appealing to you in an investment, you are not alone. In 2019 the stablecoin Tether surpassed Bitcoin as the world’s most traded crypto, according to an infographic from Coin Kickoff.
Coin Kickoff recently presented the top 10 least and most stable stablecoins, and their annualized volatility, based on data from CoinMarketCap.com, to help you make an informed investment decision.
Most Stable Stablecoins
- Tether 0.88%
- Venus USDT 0.99%
- TrueUSD 1.26%
- Binance USD 1.43%
- Dai 3.46%
- Venus USDC 3.59%
- USD Coin 3.63%
- Pax Dollar 6.14%
- BIDR 6.37%
- Celo Dollar 7.13%
Least Stable Stablecoins
- Venus BUSD 90.7%
- SXGD 80%
- Tribe 64.4%
- USDX 43.9%
- STASIS EURO 25.6%
- Fei USD 16.8%
- USDJ 11%
- Liquity USD 10.6%
- sUSD 8.5%
- Frax 7.8%
How Do Stablecoins Compare to Other Crypto?
By comparison, Bitcoin has a 61.1% annualized volatility rating, worse than some of the more volatile stablecoins. Perhaps surprisingly, though, Bitcoin isn’t the most stable crypto based on Coin Kickoff’s research. That honor goes to UNUS SED LEO, with a 53% volatility rating.
On the other hand, UNUS and Bitcoin are much more stable than the most volatile stablecoin, Venus BUSD, with a volatility rating of 90.7%. “Despite being designed to reduce volatility, stablecoins can still experience price fluctuations,” Tomita noted. “Even Tether, the most-stable stablecoin in the study, briefly lost its dollar peg when FTX collapsed in 2022.”
Advantages and Disadvantages of Stablecoins, According to Experts
As with any investment, weighing the pros and cons before jumping in and purchasing stablecoins is wise. According to experts, Stablecoins have distinct advantages over other crypto or stock market investing.
The biggest benefits relate to stability and liquidity. “Stablecoins often (though not always) have lower volatility than classic crypto assets like bitcoin and Ethereum, and so many users with a lower risk appetite may be attracted to them,” Kiely said.
“[U]sers can transact across the crypto ecosystem, using these tokens to move in and out of other digital assets. Stablecoins can also be held as interest-bearing assets with platforms like Yield App,” he added.
Tomita noted, “One advantage of stablecoins is that they bring the stability of fiat currencies to the blockchain. Since a stablecoin’s value typically won’t wildly change in the short-term, stablecoin holders can use them to buy goods and services, easily make cross-border transactions, and even take out loans backed by their stablecoins.”
However, with reduced risk comes reduced rewards, one of the drawbacks of stablecoin investing. “While stablecoins tend to offer less volatility than other cryptos, their lower annualized yield means investors are less likely to see massive returns in the short term,” Tomita said.
Kiely advised using stablecoins, more like cash, while investing in other cryptocurrencies if you seek higher returns and are willing to take on some risk. “You can earn interest on stablecoins, which is perhaps all you may need,” he said. “But in terms of those larger capital gains that many investors might be looking for, then risk assets like bitcoin will deliver stronger returns.”
However, he added that although stablecoins may be pegged to a cash value, they don’t carry the same FDIC protection as money held in a bank. “This means users should be aware of those risks at all times,” Kiely said.
Likewise, if you are storing your crypto in a cold wallet (offline), fraud insurance may not protect it. Users should always ensure they are responsible with their passwords and exercising all necessary security measures when managing their crypto, Keely pointed out.
Tomita added that the same rules of investing that apply in any situation also hold for crypto purchases. “It is important for investors to practice basic investment fundamentals, thoroughly research and understand the coins they choose to invest in, and only stake what they can afford to lose,” he said.
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