Study: The Best Stablecoins Ranked From Most to Least Stable

Study: The Best Stablecoins Ranked From Most to Least Stable

Don't trash your idle cash like TerraUSD. Here are the top 15 battle-tested stablecoins.

Study: The Best Stablecoins Ranked From Most to Least Stable
Darry Port

Published Aug 26, 2022Updated Aug 30, 2022

Ashley McKillips

Published Aug 26, 2022Updated Aug 30, 2022

Crypto

Crypto

Extra Income

Extra Income

Balanced Investing

Balanced Investing

Research and data analysis by Ashley McKillips.

High inflation and tight monetary policy have made 2022 a challenging year for stocks, bonds, and cryptocurrencies alike. On the digital asset front, blockchain analytics firm Glassnode considers 2022 to be the most significant crypto bear market in history.

In case you thought most everyone prefers cold, hard cash over crypto assets these days, the stablecoin market has risen by more than $14 billion since the November 2021 bull market peak.

The bear market has lasted 290 days so far, bottoming -73.3% from the November 2021 all-time high (ATH), and with Bitcoin and Ethereum trading below their previous ATHs for the first time ever.

During times like these, the demand for stablecoins is higher than ever.

Stablecoins were developed as low-volatility assets that investors could use to easily trade into and out of highly volatile digital assets. Crypto investors could, for instance, sell their holdings for stablecoins when they detect downtrends and buy back into cryptos at much lower prices before the next bull market starts.

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The graph above shows how a portfolio consisting of only Bitcoin and Ethereum dipped as low as -78% this year. But by adding the Tether stablecoin to this portfolio, it would have only dipped around -54%. 

At least this was the established practice before the algorithmic stablecoin juggernaut TerraUSD  (UST) collapsed and wiped out over $18B in investor value. 

These days investors are wondering: Are stablecoins even stable?

This study uses data on the most popular stablecoin projects from CoinMarketCap (CMC). Of the 102 stablecoins listed on CMC, we eliminated untracked listings and coins that don’t have verified market caps or circulating supplies.  

This left us with 47 different stablecoins, which we’ll rank based on two factors: 

  1. Volatility over the past six months
  2. Value in case of an emergency liquidation

Itching to know where you should park your cash as you wait for this bear market to blow over? Then read on. 

How to rank the best stablecoins

As of writing this, stablecoins have grown to capture more than $153 billion of the $1.04 trillion total cryptocurrency market cap. And in case you thought most everyone prefers cold, hard cash over crypto assets these days, the stablecoin market has risen by more than $14 billion since the November 2021 bull market peak. 

As of August 2022, the top 15 stablecoins by market cap on CMC are:

  1. Tether
  2. USD Coin 
  3. Binance USD
  4. DAI 
  5. True USD 
  6. PAX Dollar 
  7. USDD 
  8. Neutrino USD 
  9. FEI 
  10. Gemini Dollar
  11. Terra Classic 
  12. sUSD
  13. FRAX
  14. LUSD
  15. HUSD

But here’s the kicker: data from our study shows that the top-ranked stablecoins aren’t necessarily the most stable. In fact, there are about four stablecoins more stable than Tether (USDT) and USD Coin (USDC). 

Don’t believe us? Let’s dive into our ranking system. As mentioned above, we ranked 47 stablecoins based on their collateral and volatility. 

Collateral

Stablecoins vary by how they maintain their pegs, and not all stablecoins follow a single protocol. For example, FRAX is a fractional algorithmic stablecoin only partially backed by collateral.

Still, you can classify most stablecoins as one of the following:

  • Fiat backed stablecoins (e.g. USDT, USDC)
  • Commodity backed stablecoins (e.g. PAXG) 
  • Crypto backed stablecoins (e.g. DAI)
  • Algorithmic stablecoins (e.g. UST)

We used two binary ('yes' or 'no') variables to figure out which stablecoins have the most stable form of collateral. 

The first variable is whether or not the coin's reserves are held in the same currency as its peg. DAI, for instance, is a USD crypto backed stablecoin, which means its reserves aren’t in U.S. dollars but are a mix of ETH and other crypto assets.  In another example, a coin pegged to the dollar with reserves held in Euro is inherently more risky due to the potential price discrepancy between the dollar and the Euro.

The second variable is whether or not the collateral is directly tied to the coin's value. Here, we’re measuring total liquidation collateral value maintenance. This is just a fancy way of asking what would happen if everyone tried to sell their coins at once (like what happened when Terra collapsed). 

Following the last example, DAI’s collateral (in ETH) exists independently of DAI. USDD, on the other hand, is partially collateralized by its ecosystem token Tron (TRX). In other words, USDD and Tron are joined at the hip—making USDD an inherently riskier stablecoin.

Based on these variables, we found that:

  • Tether, USDC, BUSD, and 15 other stablecoins are highly stable.
  • DAI and ten other stablecoins are somewhat stable. 
  • FRAX, Neutrino USD, USDD, and the remaining 15 stablecoins are the least stable.

This ranking is pretty much in line with CMC’s market capitalization rankings, which means the market is accurately ranking the best stablecoins in terms of collateralization. 

Volatility

We used a six-month time frame for analyzing stablecoin volatility since their pegs have been stress tested in the aftermath of UST’s collapse. Not to mention, the stablecoin market is over $30 billion larger than it was this time last year. The bigger they are, the harder they (could) fall, right?

It’s also worth noting that some of the stablecoins we evaluated (e.g. USDD, TOR, YUSD) have incomplete volatility profiles since they’re brand new assets. 

But just looking at stablecoin volatility, the most interesting takeaway is that crypto backed stablecoins like DAI and FRAX have been less volatile than many larger fiat backed stablecoins.

In terms of which has the lowest volatility, DAI beat out Tether, USD Coin, and Binance USD. FRAX even outperformed the heavily regulated fiat currency backed stablecoin Pax Dollar (USDP). So while the jury is still out on whether algorithmic stablecoins are sustainable, the top crypto backed stablecoins have proven themselves to be the most resilient during this market crash.

Decentralized or nah

Decentralized or nah

Does stablecoin centralization matter?

The best stablecoins ranked

After taking both collateral and volatility into consideration, we arrive at this ranking of the 15 top stablecoins:

  1. BIDR
  2. IDRT
  3. XIDR
  4. TrueUSD
  5. Tether
  6. Binance USD
  7. USD Coin
  8. HUSD
  9. PaxDollar
  10. Gemini Dollar
  11. USDK
  12. TRYB
  13. XSGD
  14. EURT

Not what you were expecting, right? You’ve probably never even heard of some of these stablecoins, with 6 of them pegged to foreign currencies. Here’s what you need to know about the top 3 coins.

BIDR, IDRT, and XIDR are all stablecoins pegged to the Indonesian rupiah (IDR). Now, even though the data suggests that IDR-pegged coins have low volatility in general, we wouldn’t personally use them as stores of value since the rupiah has had a 43.9% inflation rate from 1960 to 2021. 

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IDR/USD exchange rate.

Source: google.com

The best USD stablecoins

Here’s the data you really came here for. The best USD stablecoins are as follows:

Best USD Stablecoins

  1. TrueUSD
  2. Tether
  3. Binance
  4. USD Coin
  5. HUSD
  6. PaxDollar
  7. Gemini

Shocked that Tether or USDC didn’t top the list? So are we. The data shows that TrueUSD, the 5th largest stablecoin by market cap, has been less volatile than all your favorites.

TrueUSD details:

Market cap:$1.09 billion
Current price:
Issuer: TrustToken
Regulated:Yes
Custodians:Signature Bank, Silvergate Bank, Prime Trust, First Digital Trust, and BitGo.
CMC stablecoin ranking:5
Years active:4
APR:0.27%-10%

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TrueUSD lending rates compared across cryptocurrency platforms.

Source: DefiRate 

Another interesting addition to the list is HUSD. This stablecoin isn’t widely discussed and has a lower market cap than TerraUSD, for crying out loud. Still, HUSD has managed to outperform more popular names like Pax Dollar and Gemini Dollar (GUSD). Maybe HUSD's lack of usage is due to users falsely believing that it’s exclusive to the Huobi Global exchange.

HUSD details:

Market cap: $159.8 million
Current price:
Issuer: Stable Universal
Regulated: Yes
Custodians: Paxos Trust Company
CMC stablecoin ranking:15
Years active:3
APR: N/A

A few parting words on decentralization, a key part of the blockchain trilemma. Three of the seven USD stablecoins on this list are custodied by the Paxos Trust Company. While holding reserves at one central authority is better than not holding any reserves at all, it seems that Paxos has become a central point of failure for BUSD, HUSD and USDP, and who knows how many more. 

So ask yourself: are centralized stablecoins worth the risk?