Which StableCoin should our risk-averse portion of the Watering Hole Wallet be in?

The world's StableCoins have a combined market cap of more than $150 billion.

What are StableCoins? StableCoins are the answer to the calls from early crypto investors looking for a crypto-equivalent to fiat currencies like the dollar or the rupee. It needed to be something that could reliably hold value over time without volatility and allow them to easily transfer that value. For instance, a solution that lets Bitcoin investors quickly convert their Bitcoin profits to a dollar-like value and then invest that elsewhere or simply withdraw that amount to your bank account. And, thus the ‘StableCoin’ was born, to address exactly these issues.

Why do crypto investors and traders use StableCoins? The emergence of StableCoins was great for trade, especially since crypto trades around the clock — 24 hours a day, seven days a week — unlike stock markets. Suddenly, investors could instantly ‘cash out’ and sleep peacefully, without worrying how their crypto portfolios moved overnight. It became easier to move money in, out and between crypto exchanges with StableCoins, without waiting for tedious banking procedures. StableCoins also made it easy for investors to hold a part of their crypto portfolio like cash – in such a way that they could readily purchase any coin at a moment's notice without depending on their banks’ servers, which have been known to be unavailable from time to time due to ‘maintenance’. Some cynics have even attributed the widening of crypto trading since 2014 and rising coin values to the ease of StableCoins attracting more participation in crypto markets. Since crypto is a free market, it encouraged the emergence of competing StableCoins that function in different ways but satisfy the same basic need – of being stable in value. That means $100 in that cryptocurrency will still be worth the same amount later in the day, next day, or next month. In fact, a StableCoin that shoots or drops in value would be counted as a failure in terms of its stated objectives. Because of the current financial system, the most used StableCoins are those that ‘peg’ their value to the US dollar. However, there are many StableCoins that are pegged to other fiat currencies, such as the Euro, the GBP, IMF’s SDR, commodities like gold, or oddly, even to other cryptocurrencies — a known example being Wrapped Bitcoin.

Tether (USDT) Originally founded in 2014 as Realcoin, Tether sits rightfully atop the list of StableCoins as the first such coin in the world. And with a $78 billion market cap, it's also the largest by far. First described in a white paper published in 2012, Tether is a fiat-based StableCoin. In other words, each coin is about equal to the value of one U.S. dollar held by the parent company Tether Operations Ltd. This means the coins can always be exchanged for an equal value in U.S. dollars. Despite paying a 2021 settlement over accusations of a lack of financial transparency from the New York attorney general's office, a report by auditing firm Moore Cayman in June 2021 stated that Tether's "reserves held for its digital assets issued exceeds the amount required to redeem the digital asset tokens issued." Market analysis firm InvestorsObserver gives the coin a low-risk rating, meaning price manipulation is unlikely.

Dai (DAI) According to MakerDAO's white paper on the company's Dai StableCoin, "Dai is generated, backed and kept stable" by the use of Ethereum-based currency deposited into MakerDAO's vaults. This deposited cryptocurrency then works as collateral for whenever a user wants to withdraw Dai currency. And because the deposited cryptocurrencies are worth more than the U.S. dollar, MakerDAO can keep its StableCoin pegged loosely to the U.S. dollar at a 1-to-1 ratio. This theory was so exciting to some investors that in September 2018, less than a year after the currency launched, venture capital firm Andreesen Horowitz invested $15 million in MakerDAO. This bought 6% of all the company's existing tokens at the time. This institutional investment also helps keep the coin's value stable. Even though InvestorsObserver considers Dai slightly more volatile than Tether, the site still ranks the currency as low risk.

Binance USD (BUSD) The next contender for best StableCoin, with a market cap of more than $14 billion, BUSD is the third-largest StableCoin in the world. In August 2020, BUSD was "greenlisted" by the New York State Department of Financial Services. For investors in the coin, this means four things. First, Paxos Trust Co. – Binance's partner behind BUSD – has sufficient reserves to cover every BUSD coin in existence. Second, regulators watch over the reserves backing these coins. Third, all reserves must be held in credible forms such as U.S. Treasury instruments and Federal Deposit Insurance Corp.-insured bank accounts. And finally, token reserves are fully separate from corporate assets. This means they're separate from any holdings Paxos might declare in bankruptcy filings, which makes the coins even more secure for investors. It's no surprise, then, that InvestorsObserver ranks BUSD as low risk.

True USD (TUSD) TrueUSD was the first regulated StableCoin backed by the U.S. dollar. Of course, the key word in that statement is "regulated." Regulations were put in place for TUSD because TrustToken Inc. – the exchange that issues TrueUSD – wanted to secure the trust of the cryptocurrency industry by rooting out fraudulent and manipulative schemes. Therefore, TrueUSD is a relatively transparent coin with a market cap of about $1.3 billion. TUSD's reserves are fully audited by Cohen & Company, a cryptocurrency audit and tax firm. TrustToken doesn't charge any trading fees on its TUSD coins, which is enticing to many investors. TrustToken isn't fully decentralized, however, and users are bound to the standards of the TrustToken platform. In other words, regulatory actions on the TrustToken platform will affect holders of TUSD.

USD Coin (USDC) Founded in conjunction with cryptocurrency exchange Coinbase Global Inc. (ticker: COIN) and Bitcoin mining company Bitmain Technologies Inc., USDC – like many of the coins included on this StableCoins list – is tied to the U.S. dollar. Released in September 2018, USDC has a current market cap of more than $42 billion, making it the second-largest StableCoin by market cap. USDC reserves are attested to on a monthly basis by Grant Thornton LLP, a Chicago-based accounting firm. Although the reserves are attested to, they aren't audited. This means the firm will check the validity of existing data, but it won't audit for internal inconsistencies. Although the coin's volatility ranking is slightly higher than industry leader Tether's, USDC is still considered a low-risk cryptocurrency by InvestorsObserver.

TerraUSD (UST) According to the TerraUSD white paper, the goal of this coin is to remain "both price-stable and growth-driven." TerraUSD's protocol is stabilized by Terra's own native cryptocurrency, Terra. The way this works is fairly straightforward. The Terra platform protocols incentivizes users to earn extremely low-risk profits when TerraUSD's price is anything other than $1; by linking TerraUSD to the regular Terra (LUNA) coin, and allowing LUNA to be exchanged for either UST or dollars (and vice versa), more UST is created when its price rises above a dollar, while the UST pool starts to contract when its price is below a dollar, bringing equilibrium. This give and take keeps the price of TerraUSD stable with respect to the dollar. And it appears to be working. Although rated a bit riskier than the likes of Tether and Binance USD, InvestorsObserver still considers TerraUSD to be a low-risk coin.

Trade to value explained: If the ratio is greater than one, the item is trading at a premium to book value; if it is less than one, the item’s price is trading below the book value. A ratio greater than one suggests that the item’s price is trading at value more than the worth of its equity.

Good read on relative value: https://www.coindesk.com/markets/2021/08/08/crypto-long-short-how-do-you-measure-relative-value-in-crypto/

Staking: Below is a link to a graph depicting the top stable coins ranked by market cap with a column outlining the maximum APR % attainable if the coin was fully staked & leveraged. https://www.stakingrewards.com/stablecoins/?sort=marketcapUsd_DESC