From Coingecko, we know that the global cryptocurrency market cap is $3.38 trillion today, and Stablecoin’s market cap is $233 billion, which is 6.89% of the total cryptocurrency market cap. 

This report shows that stablecoins make up most of the existing cryptocurrencies. They are very important in trading because of their stability compared to regular crypto coins, as their values are tied to fiat currencies. Another interesting fact about stablecoins is that they come in various denominations and variants from the different companies that create them.

If you find this a bit confusing, this article will clarify further as we discuss the top 5 stablecoins and their parent companies and their importance, too. Let’s now look at what stablecoins are.

What Are Stablecoins?

Every crypto coin or token has its own price, which is determined by the market forces of supply and demand. Therefore, the prices of these coins fluctuate with the passage of time, making cryptocurrencies very volatile, hence the need for stablecoins.

Stablecoins are a type of cryptocurrency designed to have a fixed value. In some cases, they are backed by fiat (Euro, US dollars), commodity (gold, oil), other cryptocurrencies, and supply-based algorithms.

How They Work

1. Fiat-Backed Stablecoins (Centralized):

• Backed 1:1 by fiat currency in bank reserves.
• The issuer mints new tokens for users.
• The issuer burns tokens and releases an equivalent fiat amount upon redemption.
• Regular audits verify reserves for transparency.
• Examples: USDT (Tether), USDC (USD Coin), BUSD (Binance USD), TUSD (TrueUSD).

2. Crypto-Collateralized Stablecoins (Decentralized):

• Backed by crypto assets like Ethereum.
• You can deposit crypto as collateral in smart contracts.
• Receive stablecoins in return, usually over-collateralized.
• Liquidation mechanisms sell assets if the collateral value drops.
• Example: DAI (MakerDAO).

3. Algorithmic Stablecoins (Uncollateralized or Hybrid):

• Rely on supply-and-demand algorithms for price stability.
• Mint new coins to increase supply and push prices down.
• Burn coins to raise the price if demand drops.
• Examples:  UST (Terra, now collapsed), FRAX (hybrid model).

4. Commodity-Backed Stablecoins

• Issuers hold commodity reserves.
• Each stablecoin represents a fixed quantity of the commodity.
• You can redeem tokens or trade them in the crypto market.
• Reserves are audited for transparency.
• Examples: PAXG (PAX Gold), XAUT (Tether Gold), AGX (SilverCoin), PTR (Petro), DGX (Digix Gold Token), etc.

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Top 5 Stablecoins and Their Parent Companies

Here are the top 5 stablecoins by market capitalization and their parent companies. 

1. Tether (USDT)

USDT is the biggest and most widely used stablecoin in the crypto market. It is a fiat-backed coin pegged 1:1 to the American US dollar. According to Coingecko, USDT has a market capitalization of $142.2 billion, which is approximately 61.02% of the total stablecoin market capitalization. 

Use case: USDT is an asset due to its stability and liquidity. It is a trading pair, facilitates cross-border payments, and acts as a digital dollar alternative in high-inflation economies. It is integrated into smart contracts, NFT marketplaces, and blockchain-based financial services.

Parent company: USDT is distributed by Tether Holdings Limited, a company closely linked to the crypto exchange Bitfinex. It started in 2014 as the first stablecoin ever made and saw early success and massive adoption. The company has faced investigations, legal disputes, and regulations that center on how reliable the USDT is. Nevertheless, USDT is trustworthy to trade with.

2. Circle (USDC)

USDC is the second most used stablecoin in the crypto market today. It is also fiat-backed and pegged 1:1 to the US dollar. According to Coingecko, its market capitalization is $56 billion, which is 24% of the total stablecoin market capitalization. 

Use case: USDC is a trusted stablecoin for institutional and retail users. It plays a big role in DeFi applications, lending platforms, and on-chain settlements. It is widely used in protocols like Aave, Compound, and Uniswap, offering reliable yield generation and liquidity. Traders prefer it to the USDT due to compliance standards and transparent reserve disclosures.

Parent company: USDC was launched in 2018 and built to be a more transparent and regulated stablecoin than USDT. USDC is issued by Circle, a fintech firm backed by Goldman Sachs, and developed from the partnership with Coinbase under the Centre Consortium. The USDC maintains its peg through fully reserved fiat assets, with regular audits and attestations to ensure transparency.

3. Ethena USD (USDe)

According to market cap, the third-largest used and decentralized stablecoin in the crypto market today is the Ethena USD (USDe), or just USDe for short. Unlike USDT and USDC, it is not backed by fiat but by synthetic dollar strategies and crypto-backed assets like Ethereum and is pegged 1:1 to the US dollar. According to Coingecko, it has a market capitalization of $6 billion, which is 2.5% of the total stablecoin market capitalization. 

Use case: USDe is a decentralized stablecoin that lets you transact without government restrictions. You can use it in DeFi for lending and trading, hedge against price swings, enjoy easy scalability, and access financial services even if you don’t have a traditional bank account.

Parent company:  USDe is issued by Ethena Labs, a blockchain company founded in 2023. Ethena Labs focuses on building decentralized financial products, including synthetic dollar solutions, on providing stability and scalability in the crypto ecosystem.

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4. Dai (DAI)

Dai (DAI) is a decentralized stablecoin launched as an alternative to fiat-backed stablecoins. It maintains a 1:1 peg to the U.S. dollar without relying on traditional banks. DAI is backed by overcollateralized crypto assets, primarily Ethereum. It has a market cap of $3.5 billion.

Use case: DAI is used in various applications, such as decentralized finance, stable trading and payments, censorship-resistant savings, volatility judgment, and smart contract settlements. It provides a stable alternative for trading, cross-border payments, and everyday transactions without relying on fiat-backed stablecoins.

Parent company: Dai (DAI) is issued by MakerDAO, a decentralized autonomous organization (DAO) founded by Rune Christensen in 2014. MakerDAO manages DAI’s governance and stability through smart contracts.

5. First Digital USD (FDUSD)

First Digital USD (FDUSD) has a $2 billion market capitalization, maintains a 1:1 peg with the U.S. dollar, and has strong liquidity. This makes it popular among traders and institutional investors because of its regulated and trustworthy nature.

Use case: FDUSD is a stable crypto trading pair integrated into lending platforms. It facilitates cross-border payments, remittances, and smart contract settlements in NFT marketplaces, gaming, and blockchain-based financial applications, offering fast, low-cost transactions.

Parent company: First Digital USD (FDUSD) was launched in 2023 by First Digital Trust, a Hong Kong-based financial services firm specializing in digital asset custody and trust solutions.

Also Read: Example of USDT TRC Wallet

Importance of Stablecoins

Stablecoins are necessary in the world of crypto, and here is why: Stablecoins provide stability and value. Aside from being a store of value that is low-volatility oriented, they are also suitable for everyday transactions when instant liquidity is provided. They make crypto transactions faster, cheaper, and easier to carry out. They also help with lending and borrowing on DeFi platforms.

Convert your USDT Stablecoins to Naira using Koyn

Using the Koyn App, you can instantly convert your USDT to Naira at affordable rates. The Koyn app has its own rate converter, which is consistent with the Dollar to Naira rate on the parallel market. Koyn App also doubles as a Utility App that facilitates payments of bills, Airtime, and other everyday transactions by most Nigerians.

Conclusion

The main purpose stablecoins serve is the stable provision of liquidity without having third parties involved like in the traditional systems and the easy integration with traditional banking operations. In addition to these uses, stablecoins are vital in digital finance since their use is becoming the trend. With time, we will further improve the future of the global market and digital transactions through stablecoins.