--- title: The Landscape of Stablecoins order: -3 hideLanguageSelector: true keywords: "makerdao, vault, vaults, collateral, dai, stablecoin" description: "Learn about Vaults where owners can deposit collateral to generate Dai." tags: Blog Posts --- # Title: The Landscape of Stablecoins Alt: The 2021 Stablecoin Round-Up Alt: Everything You Need To Know About Stablecoins Read on to learn why people use stablecoins, how stablecoins are classified, and gain insight into the landscape of stablecoins in Q1 2021. ## Why Use Stablecoins? Stablecoins offer several benefits to users, the most notable being their accessibility and the leverage offered by decentralized, collateral-backed stablecoins. Whether you’re trading, investing, or looking to purchase something, trying to calculate your costs when the spot price of popular cryptocurrencies like Bitcoin and Ether might fluctuate 20% to 30% day-to-day can become a confusing mess for the average Joe. Most stablecoins are pegged to familiar currencies like the U.S. Dollar, which is more familiar and therefore, easier to understand and easier to use. With DAI, specifically, we often hear the question: “why would I lock up my Ether (ETH) if I can only borrow less than its full value?” and the simple answer is leverage. Someone who mints DAI against any asset used as collateral can use their DAI to purchase more assets. ## Types of Stablecoins Stablecoins may be categorized according to whether or not they’re pegged to existing currencies, the methods used to maintain stability, and whether or not they can be minted without permission. The most popular stablecoins aim to maintain a peg with familiar currencies like the U.S. Dollar or Euros. Lesser-known but still relevant are non-pegged stablecoins, which attempt to provide stability to investors without maintaining a peg to an existing currency. ### Collateral-Backed Collateral-backed stablecoins use other cryptocurrencies or baskets of cryptocurrencies as collateral to maintain a peg with a familiar currency Collateral-backed stablecoins may be centralized or decentralized. Decentralized stablecoins can be minted and used by anyone by interacting with the code in a smart contract hosted on a blockchain. Unlike decentralized stablecoins, centralized stablecoins work more like “IoUs” (I owe you). These stablecoins are minted when someone purchases them from an organization that exchanges fiat currency for their stablecoin. Some don’t consider centralized stablecoins to be stablecoins, however, their popularity among investors can’t be denied. Different stablecoins take different approaches in building their collateral portfolio. Some protocols that create stablecoins allow a variety of collateral types to be used; others only allow a single type. Types of collateral that may be accepted include: - Fiat Currency - Cryptocurrency - Stablecoins - Real-World Assets MakerDAO originally launched with single-collateral Dai (SAI), which only accepted Ethereum (ETH) as collateral. With the launch of multi-collateral Dai (DAI), Dai can now be minted using a growing variety of digital assets. Members of the DAO are also building the infrastructure to accept real-world assets (RWA) like vehicles and real estate as collateral. *Examples:* - Dai - Synthetix USD and EUR - USDC ### Algorithmic While collateral-backed stablecoins like Dai have become a foundational element in the DeFi ecosystem, a number of projects have been launched to explore protocols for generating stablecoins without collateral. Rather than maintaining stability by accepting collateral denominated in that peg, algorithmic stablecoins aim to maintain their stability by employing schemes that affect the supply of tokens in response to changes in demand. *Examples:* - Ampleforth - BASED Protocol - Empty Set Dollar ## Comparing Stablecoins **So, what’s the best stablecoin to use?** It depends on what your situation is. Stablecoin users generally want the most stable cryptocurrency they can find; however, the availability of different stablecoins on different exchanges tends to be the limiting factor. If someone’s trading on centralized exchanges or using them to convert profits to fiat currency, they’re probably incentivized to use the centralized stablecoin offered by the exchange. Those looking for the censorship-resistance offered by decentralized options tend to go with the most tried-and-true stablecoins. Since stablecoins are still an emerging technology, longevity in a project tends to be a meaningful indicator of reliability. Here’s a categorized list of stablecoins: | Stablecoin | Permission | Peg | Collateral-backed vs Algorithmic | Collateral | |----- | -------- | --- | ----------- | ------------ | | Dai | Permissionless | USD | Collateral-backed | AAVE, BAL, BAT, COMP, ETH, GUSD, KNC, LINK, LRC, MANA, PAX, RENBTC, TUSD, UNI, UNIV2DAIETH, USDC, USDT, YFI, ZRX | | Synthetix USD | Permissionless | USD | Collateral-backed | SNX | | Synthetix EUR | Permissionless | EUR | Collateral-backed | SNX | | Binance USD | Permissioned | USD | Collateral-backed | USD | | Gemini Dollar | Permissioned | USD | Collateral-backed | USD | | Huobi USD | Permissioned | USD | Collateral-backed | USD | | Paxos Standard | Permissioned | USD | Collateral-backed | USD | | True USD | Permissioned | USD | Collateral-backed | USD | | USDC | Permissioned | USD | Collateral-backed | USD | | USD Tether | Permissioned | USD | Collateral-backed | USD | | mStable | Permissionless | ---- | Collateral-backed | TUSD, sUSD, USDC, USDT | | DeFiDollar | Permissionless | ---- | Collateral-backed | DAI, USDC, USDT, TUSD, yCRV, yUSD | | Origin Dollar | Permissionless | ---- | Collateral-backed | USDT, USDC, DAI | | Reserve Dollar | Permissionless | ---- | Collateral-backed | USDC, PAX, TUSD | | Ampleforth | Permissionless | USD | Algorithmic | n/a | | BASED Protocol | Permissionless | sUSD | Algorithmic | n/a | | Basis Cash | Permissionless | USD | Algorithmic | n/a | | Empty Set Dollar | Permissionless | USDC | Algorithmic | n/a | | Frax Protocol | Permissionless | USDC | Algorithmic | n/a | | Benchmark Protocol | Permissionless | Special Drawing Rights | Algorithmic | n/a | | Mithril Cash | Permissionless | USDT | Algorithmic | n/a |