Cryptocurrencies Pegged to Fiat – Alternatives to Tether
In the world of cryptocurrency, digital assets can often be very unpredictable. The prices of these coins or tokens can swing violently from one day to the next based on many factors, and while this can create substantial gains one day, it can also create substantial losses the next. For this reason, it’s important to utilize a more stable currency for gains in order to protect your capital from impending crashes. This is often done by utilizing a fiat pegged cryptocurrency.
What does it mean to have a cryptocurrency pegged to fiat?
A pegged cryptocurrency is one that is linked to a government-issued fiat currency. These currencies are often more stable due to inflation, and while that can be bad in some cases, it’s also good in others. For example, a currency such as this will be more reliable. When other assets such as cryptocurrencies, stocks or real estate are experiencing a downturn, you will likely be able to depend on a pegged or fiat currency to retain its buying power in these situations.
This not only allows for users to protect the profits that they have made in a bull market, but it also allows them access to capital that can give them the power to increase their positions when the bear market hits. As a result, savvy investors with access to a pegged currency or cash were quick to scoop up heavily discounted crypto projects during the last dip to increase their portfolio positions when the market recovered. Cashing out to US dollars or your government issued currency is not the only option though, and in this article, we’ll go over some common fiat pegged cryptocurrencies that can get the job done just as well, and typically with less hassle.
1. US Dollar Tether (USDT)
- Widespread integration, available on many platforms
- A transparent representation of reserves
- 100% backed by US dollars in reserve account
- Tradable for USD and EUR
- Increasing number of Tethers could potentially drop their value under the peg
- Bitfinex fiasco leaves investors unsure of Tether’s future
- Requires KYC verification to acquire
The US Dollar Tether is meant to convert US dollars into a digital currency. It functions by acting as a reserve, and the backers of this currency promise that each one is backed by real money held by the issuer. Users can verify these numbers by viewing the “transparency page”. This is a resource on the USDT website that allows users to verify the assets held by the company in real time.
The creator of this currency is JL Van Der Velde, who is also the CEO of Bitfinex. This alone gives many investors pause about utilizing the currency due to the reputation that his company has garnered with crypto investors. These grievances include poor customer service and a vulnerability in their exchange that lead to 120,000 Bitcoin being stolen.
While this does make some very critical of the currency’s team, it would seem that many platforms do not agree since it is the most widely used pegged currency that is available. Still, some in the space are skeptical of the currency’s true value and remain apprehensive about the sheer number of Tether that is being produced, which they feel may actually value it under what is being promised by the company. They also operate on a very centralized and intrusive system which is frowned upon by most people in the cryptocurrency space, since its largest appeal is to not be dependent upon such a system.
2. Steem Backed Dollar (SBD)
- Easily tradable with various cryptocurrencies
- Can be earned by Steem accounts
- No need for KYC verification to acquire it
- Limited exchange options to and from fiat currencies
- The peg is not as reliable as other options
- Wallets are very transparent, anyone can see your funds
SBD is the fiat pegged currency of the Steemit platform. Initially, this is slightly confusing to investors, as they also have STEEM. However, these currencies are very different. Steem is used to power up accounts, and the SBD is meant as a US dollar pegged asset for spending. Essentially, this gives users the ability to earn a stable spendable currency, while also allowing them to keep powering up their Steem to raise the value of their accounts, thus providing the ability to produce additional SBD for the content that they produce.
However, it does not seem that their platform does a very good job of being a stable currency. Recently the price of SBD pumped as high as $13 USD per SBD, and it has not returned back to its supposed pegged value at 1 USD. While most of these fluctuations have been on the high side, it has also fallen below its pegged value on occasion. In either case, it establishes itself as a failure at being a pegged currency, as any fluctuation in value is undesirable for obvious reasons. Even if that fluctuation is positive, it proves that it has failed at its job, and it means a drop in value is not outside the realm of possibilities.
SBD was created by Dan Larimer and Ned Scott, in conjunction with STEEM as part of the Steemit platform’s internal economy. This project has existed since 2016, where it was proposed as an alternative way for users to earn cryptocurrency. Instead of mining, users would be paid in SBD for blogging. While SBD functioned as planned for a while, market manipulation of the currency due to its low coin supply has lead to unintended results. The community has made proposals to restore SBD to its pegged value, but none have thus far gone through. The Steem Back Dollar itself is backed by a reserve of one USD worth of Steem held on the blockchain. The methods by which this is achieved however are not well documented, and even those who have thoroughly searched the white paper are mystified by the process.
3. Dai (DAI)
- Excellent pegged currency that’s good at maintaining its value
- Decentralized ecosystem
- No need for KYC or even for funds to leave your wallet
- Not as widely accepted as other options.
- A settlement could potentially be uncontrollable
- Ethereum collateral not as stable as a USD peg
While other currencies such as SBD have had a hard time sticking with their fiat peg, Dai has remained fairly constant. The largest degree of change has only been in the range of a couple cents in either direction and then quickly rectified. By utilizing a collateral and interest rate scheme meant to control price volatility, Dai manages to keep up with its reference point, the US dollar. They’ve also collaborated with other cryptocurrency based projects to allow users to purchase and trade Dai for goods or services such as OmiseGo, Request Network, and Dether.
Dai was created by Maker, a company that sought to create a stable cryptocurrency for payments. Their platform is built on the Ethereum chain, and their stable currency is backed by Ethereum that is held in collateral. This decentralized platform ties in directly with wallets such as Meta Mask, so there is no need to submit your asset to an outside authority.
However, the Maker ecosystem does have one rather troubling feature. Maker holders can enact a global settlement at any time which will automatically cash in all of your Dai to the equivalent of one dollar in Ethereum. If this happens and you are unaware, then you could be at risk of price fluctuations for a holding which you thought would remain stable. While the event is unlikely, it is something to think about, and it may negate the value of this currency in a catastrophic event.
How does this all work? Well, first a user must lock their Ether into a smart contract, and then is given a stable currency in exchange. However, this works more like a loan, and that means that you are still subject to the risk involved when investing. You could potentially recover your loan amount if Ethereum were to drop in value, but since the collateral is not equal to the amount received, this seems to defeat the purpose of using a stable currency in the first place. What’s more is that you must actually lock more collateral than what you receive. This prospect may turn off potential investors as the exchange seems overly burdensome compared to other options.
4. BitCNY (BITCNY)
- Can be traded for many assets on BitShares, including other pegged assets
- Decentralized exchange, requires no KYC to acquire
- Good at maintaining its pegged value
- Can be force settled
- Not very useful for spending
- Not as stable as a fiat pegged currency
This currency is native to the BitShares platform, a decentralized exchange. Unlike the other currencies in the list, this one is not pegged to the US Dollar, but instead to the Chinese Yuan. As a pegged currency, it seems to be doing a decent job of sitting where it should be. It is also likely the only decent option for an investor that is looking to hold their funds in a cryptocurrency that is backed by a Chinese fiat option. For this reason, it’s actually the highest volume asset that is being traded on the BitShares exchange, even eclipsing the USD version by a very large amount.
The entire bitshares platform actually uses Bitshares as collateral though, so this makes the option a little misleading by name, as it is not actually backed by any Chinese Yuans. It is instead simply backed by enough BTS to equal one CNY. Collateral must be put up by the user that wants to acquire this asset, and they actually must put up more than what they will receive.
That means if you want $100 worth of BitCNY, then you must lock $200 worth BTS in a smart contract. If the value of BTS were to fall, these assets would be sold to maintain the price of BitCNY. For this reason, a crypto backed option might actually not be ideal when compared to a token that is backed by a fiat currency such as US Dollars.
However, there is the benefit of just how many pegged assets are on the BitShares platform. You’ll actually be able to exchange and trade for multiple other currencies, including BitUSD, BitGold, BitSilver, and BitEUR to name a few. This gives investors many options in pegged currencies other than the typical USD option that is usually available. These options are not only attractive to investors who may want to use their home currency, but it also gives access to a sort of cryptocurrency based forex trading system which could be taken advantage of.
5. TrueUSD (TUSD)
- Can be traded with other pegged assets on their home network
- Holds consistent value to its peg
- Useful for remittance, purchases or payroll
- Fait backed, more stable than crypto backed currency
- Frequent third-party account audits for accuracy and security
- Requires KYC/AML
- Higher fees require a minimum buy in to receive currency
- Limited exchange exposure
The TrueUSD is actually part of a much large network created by TrustToken. This platform not only issues tokens backed by the US Dollar, but it also allows for you to tokenize and trade literally anything, such as currencies, stocks, bonds, real estate, timeshares, and businesses. This offers a distinct advantage in that you could use your TrueUSD to leverage other assets if you wished as well without leaving their native ecosystem.
As for the currency itself, they offer a publicly audited smart contract set up that allows users to verify their proof of funds. All transactions are conducted via an escrow account that allows for the exchange of TrueUSD without the underlying company ever touching your funds. They’ve chosen escrow as a means to satisfy the legal contracts involved with issuing this digital currency. Once your wire has hit this escrow your Ethereum address will be credited with newly minted tokens that are representative of what you have paid. This method allows you to mitigate risk without the collateral overage that is needed for cryptocurrency backed solutions.
TrustToken itself has some excellent partnerships going with StartX, a division of Stanford University, Futurism and several trust providers who likely manage the legal legwork of the escrow service. While they are not decentralized, and the escrow option does seem a little ancient when compared to cryptocurrencies, they are likely to be one of the most promising options here, especially as their base platform progresses to allow more assets.
A final option: converting to USD in exchanges
In some cases, it’s possible to convert directly to USD on exchanges. Not very many of them offer this option though, and it can be troublesome to do so. However, one notable exception to this rule is Yobit. Since this is a Russian exchange, they are not subject to the same KYC procedure as other exchanges, and so you’re free to more or less do whatever you want here with your money. This might be appealing to investors who want a US dollar option for safety, without the intrusiveness of the US dollar pegged tethers on the list.
Unfortunately, Yobit is not the most reliable exchange in the world. Digital currency wallets are subject to go down without warning, and keeping a large amount of US Dollars is here is likely not advisable, and the options available to withdraw these currencies are not very popular options if you live outside of Russia, where this exchange is based. However, it is possible to utilize this exchange to store currency in the event of a crash.
Converting to fiat in Yobit for crash protection
- Quick access to capital in the event of a crash
- Shield some or all of your gains from volatility
- No KYC needed to maintain privacy
- Not a very safe storage option
- Many user complaints about wallets going down with no solutions
- A rather clunky interface
Converting crypto to USD in Yobit is relatively easy, and it’s even pretty easy to buy cryptocurrency provided you are prepared to utilize one of their options. If you want to pull your converted USD out of Yobit’s system or put more in from an external account then you can utilize Perfect Money, Capitalist, Payeer, AdvCash, or they also allow you to withdraw to Mastercard or Visa for a 6% fee. However, since you are riding out a crash, these options will likely be unnecessary, as they will allow you to hold these US dollars directly in your account.
After creating a Yobit account, you can visit the USD exchange market. There you’ll be able to trade a decent amount of coins and tokens against the USD, including Bitcoin, Ethereum, Litecoin, EOS, Dash, etc. This currency can then be held in your Yobit account while you wait for a dip. By utilizing this method investors can have quick access to buying power.
In closing, it’s important to remember that there is no one best option. The best option for you is the one that preserves your capital and gives you the best buying opportunities with the least hassle. It’s also important to utilize all the security features available to you such as 2FA and e-mail confirmations to protect your accounts from malicious activity. Cryptocurrency can be unforgiving sometimes, and it’s up to us as investors to protect ourselves accordingly. It might also be a good idea to utilize multiple options so that in the event of a security breach all of your assets are not in one place.