If you are not yet familiar with this type of cryptocurrency, you should do so to understand the functions of the main stablecoins. We provide a top 5 guide that will tell you about the major stablecoins in the market. 

Stablecoins are digital currencies whose price is tied 1 to 1 to another financial asset. The most popular of these coins are pegged to the US dollar. This gives investors in crypto assets the opportunity to convert their money into a more useful form in a market that is highly volatile. Before the introduction, converting FIAT money into cryptocurrencies was much more difficult. 

When it comes to stablecoins pegged to the US dollar, there are 3 different types of stablecoins:

• Stablecoins with Collateral: With this type of stablecoin, each individual coin is backed by an asset. For example, a financial organization can hold a US dollar equivalent for each coin (Example: Tether, USD Coin, Binance USD).
• Algorithmic stablecoins: These coins use certain blockchain-based mechanisms to keep the price of the coins constant (example: TerraUSD).
• Collateralized stablecoins: This uses smart contracts to tie up other crypto assets as collateral for loans. From these loans, programs generate new coins (example: Dai).

Tether was originally launched as a real coin in 2014. It is the largest and most well-known stablecoin on the market. Tether has a market cap of $80.88 billion, making it the 4th largest cryptocurrency. It is available on 400+ crypto exchanges.

Despite its excellent functionality and status as a market leader, Ether has recently come under fire as the company has repeatedly denied investigations and had to pay fines for criminal activities in the US. Despite these difficulties, Ether has performed excellently as a stablecoin since its inception.

The USD coin was introduced by the Coinbase exchange in 2018 . USDC is now the second largest stablecoin with a market cap of $52.6 billion. This puts him in 5th place behind Tether at Coinmarketcap.

The USDC is available on almost 300 exchanges and works extensively with financial institutions and regulators. Unlike Tether, monthly investigations take place at the USDC.

After Coinbase launched USD Coin, the world's largest crypto exchange Binance followed soon in 2019 when it launched its own stablecoin. The market capitalization is 17.66 billion US dollars. This makes BUSD number 12 on Coinmarketcap. BUSD is only available on just over 100 exchanges but benefits from powerhouse Binance.

Binance users benefit from 0% transaction fees on BUSD. Furthermore, they can earn an income of up to 15% per year through lending. Among the top 3 stablecoins, BUSD is the only one allowed by WallStreet regulators.

The Terra USD is the most recently launched and the fastest-growing stablecoin among this selection. The launch took place in September 202 on the Terra Blockchain. Right now, the algorithmic stablecoin is #4 among stablecoins and #14 overall, with a $15.68 billion market cap. 

The Terra USD is kept stable by algorithms on the Terra Blockchain. It is a true decentralized stablecoin, unlike the top 3, as it is not backed by equivalents held centrally. Investors can earn up to 20% annual returns on TUSD using the Terra Anchor Protocol. You can find more information about Terra in this article. 

Dai is the most popular collateralized stablecoin. At $9.92 billion, DAI ranks 19th among all cryptos by market cap. The Dai is available on over 200 exchanges. 

The Dai is the product of the Maker Protocol, a decentralized application based on the Ethereum blockchain. The DAI uses smart contract to bind other crypto assets like Ethereum and generate new stablecoins through this security. 

You can buy stablecoins if you want to start with cryptocurrencies but are afraid of the high volatility first or want to get to know the processes first. However, of course, they do not bring in any income, since their value is stable against the US dollar. 

You can make money from stablecoins over the long term, but it's just a slightly riskier alternative to a savings account. A diversified portfolio with "regular" cryptocurrencies is a better choice.

Since stablecoins have a "stable" price, they are generally considered the safest form of investment among cryptocurrencies. However, as an investor, you should know that stablecoins are typically highly centralized compared to "real" cryptocurrencies, which are completely decentralized. Tether, USD Coin, and Binance USD are all wholly owned by their parent companies. 

The financial organizations that issue stablecoins accumulate power and money similar to normal banks, but without having to follow the normal regulations in the classical financial market. In recent years, the market capitalization of all coins has increased massively in a short time. As these types of cryptocurrencies become more and more involved in traditional financial markets, calls for more regulation are getting louder. They are also more vulnerable to a financial crash.

Concepts like the Terra USD are therefore becoming increasingly popular. The decentralized aspect of cryptocurrencies can also be used with stablecoins. However, this new form still offers the important price stability.