In the early days of cryptocurrency, the community laughed at the idea of a stable digital currency pegged to a fiat currency like the US dollar. Today, the narrative has completely reversed: Tether (USDT) now captures more trade volume than most major fiat currencies, including the USD and JPY. Over the past year, a growing number of 'stablecoins' have entered the crypto-economy, and many view them as essential building blocks for the future of blockchain technology.
The Birth of Stablecoins: JR Willett’s Mastercoin Whitepaper (2012)
The concept of asset-pegged cryptocurrencies was first thoroughly explored in 2012 by J.R. Willett in his Mastercoin whitepaper. By 2014, the idea gained significant traction, though early attempts often failed. For instance, Nubits (USNBT) was designed to maintain a 1:1 peg with the US dollar. While it held steady initially, it lost its peg on June 9, 2016, and never recovered.
Tether: The King of All Crypto-Dollars
In November 2014, Reeve Collins unveiled Tether, a blockchain-based coin issued on the Bitcoin network via the Omni Layer protocol. Each USDT is allegedly backed one-for-one by US dollars held in reserve by Tether Limited, a claim that has sparked intense controversy. Despite the skepticism, USDT has maintained a stable price since its first recording on CoinMarketCap in February 2015. Traders widely use Tether as a safe haven during bear markets, avoiding the need to convert back and forth into fiat. USDT is listed on major exchanges including Binance, Poloniex, Bitfinex, OKEx, Huobi, Bittrex, and HitBTC. As of recent data, USDT holds the ninth position among all cryptocurrencies by market capitalization.
MakerDAO and Dai Tokens
Another prominent stablecoin is Dai, created on the Ethereum blockchain by the MakerDAO protocol. Users deposit blockchain-based assets as collateral to generate Dai tokens, which are algorithmically pegged to the US dollar. Since its first CoinMarketCap record on December 27, 2017, Dai has consistently traded between $0.99 and $1.02. While less popular than USDT, Dai has found a niche on decentralized exchanges (DEXs) such as Bancor, Radar Relay, and Ethfinex, as well as in borrowing and leverage protocols.
Trust Token Asset Tokenization Platform
TrueUSD (TUSD), issued by the Trust Token Asset Tokenization Platform, claims each token is collateralized by USD held in escrow accounts. With a market valuation of approximately $60 million, TUSD has been adopted by exchanges like Bittrex, Binance, and India’s Zebpay. Since its listing on CoinMarketCap on March 6, 2018, TUSD has maintained a stable range of $0.99 to $1.01.
More Stablecoins on the Horizon
Beyond the three major stablecoins, several innovative projects are emerging. Kowala (KUSD) has partnered with Ledger to enable hardware wallet support. NUSD, built by the Havven team, is an EOS-based stablecoin. USDVault plans to back each token with gold bullion stored in Swiss vaults, offering a 1:1 USD price ratio via precious metals. Additionally, the unicorn company Circle Invest has announced its own dollar-pegged stablecoin in development.
While stablecoins continue to gain popularity, trust remains the central issue. Users must rely on the issuers’ claims that reserves are fully backed. If stablecoins are based solely on a price ratio rather than full fiat collateralization, can they maintain their 1:1 value over time? The coming years will test the resilience of these digital dollars.