What are stablecoins?

A stablecoin is a cryptocurrency that is designed to minimise price volatility. It does this by pegging its price to a more stable asset, typically a fiat currency or a ‘hard’ commodity such as gold. To keep the price of their coins stable, operators will maintain physical stocks of the underlying asset, or employ algorithms that adjust to fluctuations in demand and supply.

These operators are typically private organisations or foundations (eg Tether is issued by Tether Limited, USD Coin is issued by Centre, a consortium founded by Circle). We will explore the different types of stablecoins and how they work later in this article. 

Just like other cryptocurrencies, stablecoins run on blockchains that operate 24/7, and so can be traded and exchanged around the clock with almost immediate settlement. Many stablecoins are interoperable across multiple blockchains. The combination of the best of cryptocurrencies, with the price stability of more traditional financial instruments, makes stablecoins a popular alternative for settling payments. This is especially true for cross-border transactions, where traditional banking infrastructure can be disconnected, making payments and settlements complex, slow and costly.

Today, stablecoins account for around 10% of the entire cryptocurrency market, measured by market cap. While the 2022 cryptocurrency crash saw the stablecoin market contract, today overall market capitalisation and trading volumes are almost back at their 2022 peak, while 75% of digital asset owners reportedly now hold stablecoins.

Of the total payments volume BVNK collected through our Global Settlement Network in the last 12 months (June 2022-June 2023), almost 60% were stablecoins. Around 15% of payment were also settled in stablecoins. For the remainder, stablecoins were used as an intermediary to move fiat funds, mainly euros, pounds and dollars. Stablecoins also make up the vast majority (90%) of consumer cryptocurrency payments processed by BVNK. 

Stablecoins’ hardening as a mainstream financial instrument is also being evidenced by the companies that are now developing new products and services with it. SAP is now testing cross-border payments using USD Coin for example, while Facebook and Visa are also reported to be exploring stablecoins.

The different types of stablecoins explained

There are four different types of stablecoins: fiat-collateralised stablecoins, crypto-collateralised stablecoins, algorithmic stablecoins, and commodity-collateralised stablecoins. Let's explore each of these types in more detail:

Fiat-collateralised stablecoins

Fiat-collateralised stablecoins (also known as off-chain stablecoins) are backed by reserves of traditional fiat currencies, such as the US dollar, held in a bank account or custody service. The issuer matches the stablecoin supply by an equivalent amount of fiat currency. This 1:1 supply ratio ensures the value of the stablecoin is pegged to the underlying fiat currency. Examples of fiat-collateralised stablecoins include Tether (USDT) and USD Coin (USDC).

Commodity-collateralised stablecoins

Commodity-collateralised stablecoins are backed by reserves of tangible assets, such as gold, silver, or other commodities. The issuer holds a certain quantity of the commodity in reserve for each stablecoin in circulation, in order to tie the value of the stablecoin to that of the underlying commodity. This type of stablecoin provides a bridge between traditional commodity and cryptocurrency markets. Examples of commodity-collateralised stablecoins include PAX Gold (PAXG) and Tether Gold (xAUT).

Cryptocurrency-collateralised stablecoins

Cryptocurrency-collateralised stablecoins (also known as on-chain stablecoins) are backed by a reserve of other cryptocurrencies, such as Ether (ETH) or bitcoin (BTC). These stablecoins use smart contracts to lock in cryptocurrency stock (unlike fiat-backed cryptocurrencies that rely on a central financial institution to hold reserves). Examples of cryptocurrency-collateralised stablecoins include Dai (DAI) and Wrapped Bitcoin (WBTC).

Algorithmic stablecoins

Algorithmic stablecoins (also known as non-collateralised or seigniorage-style stablecoins) use algorithms and smart contracts to control the supply and value of the stablecoin. When the price of the stablecoin is above its peg, the algorithm increases the supply to bring it down, and vice versa. These stablecoins are more complex and rely on market dynamics to achieve stability. USDD is an example of an algorithmic stablecoin. 

11 best stablecoin picks for B2B payments in 2023 [ranked & reviewed]

There are around 100 stablecoins available. Here we look at the largest 11 stablecoins, measured by market cap. (Unless otherwise stated, all data in this section was sourced from coingecko.com between 3-5 July 2023.)

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1. Tether (USDT)

Launched: July 2014 (as Realcoin)
Type: Fiat-collateralised
Pegged currency/asset: US dollar
Market cap / rank: $83.4bn / 1
30 day average trading volume: $19.2bn
Primary blockchains: Algorand, Avalanche, Ethereum, EOS, Liquid Network, Near, Omni, Polygon, Solana, Bitcoin Cash's Standard Ledger Protocol, Statemine, Statemint, Tezos, and Tron
Exchanges present on: 432

About: Tether was the first stablecoin to be created, and is the largest stablecoin by circulation and market capitalisation. It is controlled by Tether Limited. ​​The USDT peg is maintained via a 1:1 collateral ratio. Tether Limited claims that every USDT in circulation is 100% backed by actual fiat in their reserves, and publishes their stock levels on their transparency page.

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2. USD Coin (USDC)

Launched: Sept 2018 
Type: Fiat-collateralised
Pegged currency/asset: US dollar
Market cap / rank: $27.7bn / 2
30 day average trading volume: $3.5bn
Primary blockchains: Ethereum, Algorand, Solana and Stellar
Exchanges present on: 406

About: USD Coin is managed by a consortium called Center, which was founded by Circle and includes members from the cryptocurrency exchange Coinbase and Bitcoin mining company Bitmain. Circle claims that each USDC is backed by a dollar held in reserve, or by other "approved investments", though these are not detailed. In June 2021 the wording on the Circle website changed from the previous "backed by US dollars" to "backed by fully reserved assets". USD Coin reserves are regularly attested but not audited, and the monthly attestations can be found on the Centre Consortium's website. 

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3. Dai (DAI)

Launched: Dec 2017 
Type: Cryptocurrency-collateralised 
Pegged currency/asset: US Dollar
Market cap / rank: $4.3bn / 3
30 day average trading volume: $151.6m
Primary blockchains: Ethereum 
Exchanges present on: 215

About: Dai is maintained and regulated by MakerDAO. Dai is created from an overcollateralised loan and repayment process facilitated by MakerDAO's smart contracts. Users who deposit ether (or other cryptocurrencies accepted as collateral) are able to borrow against the value of their deposits and receive newly generated Dai. Upon repayment of the loan and its accrued interest, the returned Dai is automatically destroyed, and the collateral is made available for withdrawal. The stablecoin’s soft peg to the US dollar is maintained through supply and demand auctions. In March 2020, as a result of extraordinary market volatility, Dai experienced a deflationary deleveraging spiral that left it trading at USD $1.11.

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4. Binance USD (BUSD)

Launched: Sept 2019
Type: Fiat-collateralised
Pegged currency/asset: US Dollar
Market cap / rank: $4.1bn / 4
30 day average trading volume: $1.8bn
Primary blockchains: Ethereum, Binance Chain
Exchanges present on: 139

About: Binance USD is a 1:1 US dollar-backed stablecoin issued by Binance (one of the world’s largest cryptocurrency exchanges), in partnership with Paxos (a leading provider of blockchain infrastructure). BUSD is regulated by the New York State Department of Financial Services and is fully backed by cash and cash equivalents; cash-equivalent reserves include US Treasury bills with a maturity of less than 90 days and overnight loans secured only by US Treasury securities. The BUSD Monthly Audit Report can be viewed from the official website. In February 2023, Paxos stated it will end its relationship with Binance for BUSD, ceasing issuance of new BUSD tokens, though it will continue to manage the dollar reserves.

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5. TrueUSD (TUSD)

Launched: April 2018
Type: Fiat-collateralised
Pegged currency/asset: US Dollar
Market cap / rank: $3bn / 5
30 day average trading volume: £954.2m
Primary blockchains: Ethereum, TRON, Avalanche, BSC, Fantom, and Polygon
Exchanges present on: 54

About: TrueUSD is operated by Archblock (formerly TrustToken) and backed 1:1 with the US Dollar. It is the first stablecoin with live on-chain attestations by independent third-party institutions. The data is publicly available at tusd.io. 

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6. Frax (FRAX)

Launched: March 2019
Type: Crytocurrency-collateralised and algorithmic (known as “fractional-algorithmic”)
Pegged currency/asset: US Dollar
Market cap / rank: $1bn / 6
30 day average trading volume: $16.2m
Primary blockchains: Ethereum, Dogechain, Avalanche, Fantom, BSC, Polygon, Arbitrum, and Moonbeam
Exchanges present on: 41

About: Frax is a unique stablecoin with parts of its supply backed by collateral and parts of the supply algorithmic. The ratio of collateralised and algorithmic depends on the market's pricing of the Frax stablecoin. If Frax is trading at above $1, the protocol decreases the collateral ratio. If Frax is trading at under $1, the protocol increases the collateral ratio. Frax stablecoins can be minted by any user who supplies collateral tokens (currently USDC stablecoins) and governance tokens (FXS, the protocol’s native governance tokens).
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7. Pax Dollar (USDP) (previously Paxos Standard - PAX)

Launched: Sept 2018
Type: Fiat-collateralised
Pegged currency/asset: US Dollar
Market cap / rank: $939.9m / 7
30 day average trading volume: $377.9m
Primary blockchains: Ethereum, Binance Smart Chain
Exchanges present on: 21

About: Pax Dollar (previously Paxos Standard) is maintained by Paxos, which has a regulatory charter from the New York State Department of Financial Services. As such, Pax Dollar is one of only a few stablecoins that has been approved by Wall Street regulators. Pax Dollar is collateralized 1:1 with the US dollar, and its dollar stock levels are reported in monthly transparency reports. 
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8. USDD (USDD) (also known as ‘Decentralised USD’)

Launched: April 2022
Type: Cryptocurrency-collaterised and algorithmic
Pegged currency/asset: US Dollar
Market cap / rank: $738.7m / 8
30 day average trading volume: $15.5m
Primary blockchains: TRON, Ethereum, BNB Chain
Exchanges present on: 23

About: USDD is an over-collateralised stablecoin that is issued by the TRON DAO Reserve (TDR), which is also the custodian. The TDR is made up of nine crypto-native institutions. USDD’s value is backed by the over-collateralisation of cryptocurrency assets, including bitcoin (BTC), Tether USDT, USDCoin (USDC), and TRX (Tron’s native token). This basket of assets accounts for over 200% of the value of USDD in circulation. The peg is maintained through the ‘Peg Stability Module’ that allows 1:1 transfer of USDD for USDT, USDC, TUSD, and USDJ. The PSM’s USDD funding is controlled by the TRON DAO Reserve. New USDD can be minted by the approved institutions of the TDR by depositing TRX.
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9. Gemini Dollar (GUSD) 

Launched: Sept 2018
Type: Fiat-collaterised 
Pegged currency/asset: US Dollar
Market cap / rank: $564.9m / 9
30 day average trading volume: $1m
Primary blockchains: Ethereum
Exchanges present on: 9

About: The Gemini Dollar (GUSD) is a regulated stablecoin (by the New York State Department of Financial Services), issued by Gemini Trust Company, a digital currency exchange and cryptocurrency custodian. Dollar stock levels are verified on a monthly basis by registered public accounting firms and reported publicly. 
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10. Pax Gold (PAXG) 

Launched: Sept 2019
Type: Commodity-collaterised 
Pegged currency/asset: Gold
Market cap / rank: $482.1m / 10
30 day average trading volume: $9.4m
Primary blockchains: Ethereum
Exchanges present on: 34

About: Pax Gold (PAXG) is a gold-backed stablecoin, managed by Paxos (also administrators of Pax Dollar - USDP). Each PAXG token is backed by one ‘troy ounce’ (31.1035 grams) of actual gold, which are stored in Brink’s vaults in London. Holders of PAXG also own the underlying gold and can redeem tokens for their equivalent in physical gold. Paxos publishes monthly audits to attest that its supply of PAXG tokens matches the amount of gold it holds. 
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11. Tether Gold (XAUT) 

Launched: 2020
Type: Commodity-collaterised 
Pegged currency/asset: Gold
Market cap / rank: $474.4m / 11
30 day average trading volume: $6.6m
Primary blockchains: Ethereum
Exchanges present on: 15
About: Tether Gold is managed by Tether Limited (also administrators of Tether - USDT, the largest stablecoin). Tether Gold is backed by physical stocks of gold, stored in Switzerland, with one coin equal to one ‘troy ounce’ (31.1035 grams) of gold. 

Pros and cons of using stablecoins for B2B payments and settlements

Though cryptocurrencies offer businesses a number of advantages over traditional payment and settlement methods, their potential for price volatility can be an overriding concern. The price stability of stablecoins relative to other cryptocurrencies makes them a more viable option. But stablecoins are not without risk. The peg with their partnered currency or asset can break, and they are not yet regulated to the same degree as traditional financial instruments. 

In this section, we will look at some of the pros and cons of using stablecoins for B2B payments and settlements. Let’s start with the benefits.

Cost

The leading stablecoins are available on decentralised blockchains, so businesses avoid the fees and costs associated with traditional intermediaries, currency conversions, and compliance requirements. In one study, remittance costs in the foreign exchange market could be reduced by as much as 80%. Even if a business is using stablecoins to bridge fiat currency trades (also known as ‘on- and off-ramping’), where a third-party is typically used, savings can be achieved.  For example, moving funds from South East Asia to Europe can be 3-4x cheaper when using stablecoins instead of the Swift network, while transfers from Africa to Europe can be up 5-10x cheaper. As with traditional payments, businesses with high volumes and lower risk profiles are typically able to access better rates from providers.

Cash flow 

One of the biggest challenges for businesses is cash flow. Cost is just one element. Slow settlement also plays a big role in this problem, especially when money is moving across multiple territories. Payments that cross borders take complex paths, often navigating their way through intermediary banks before they arrive. FX adds more time and cost before the payment clears. Since stablecoins aren’t encumbered by the blockages that exist when fiat money moves, and operate 24/7, they enable fast settlement. Relative cost and settlement times are important benefits of stablecoins, as this ensures the working capital needed to do business is available at the moment of need, and makes financial planning easier.  

Market accessibility

Stablecoins can provide an alternative payment and settlement rail for businesses in regions with limited banking infrastructure, with restricted access to banking systems. This benefits both businesses selling into new markets, and recipient businesses that can purchase a greater choice of goods and services. 

Automation and smart contract integration 

Stablecoins often operate by using smart contracts, and these can be extended to automate payment terms and conditions. By using smart contracts to streamline payment and settlement, businesses can reduce their operating costs, and also benefit from faster and more accurate processes.  

Balance sheet diversification

Businesses must frequently adapt their financial strategies to shield themselves from currency fluctuations and the eroding impact of inflation on cash reserves. Outdated systems, and assets that are traditionally held as a long-term store of value, pose challenges for companies that are looking to act fast in markets. Stablecoins give rise to a parallel marketplace characterised by enhanced liquidity and reduced barriers. As a result, businesses have more agility to rebalance their portfolios, thereby optimising the overall worth of their holdings. Furthermore, stablecoins offer an attractive option for businesses operating in regions facing soaring inflation rates, as they can serve as a dependable, long-term store of value.

Now let’s look at the cons of using stablecoins for B2B payments and settlements.

Depegging

Over the past few years, some stablecoins have broken their peg. In March 2023, USD Coin (USDC) lost its dollar peg, dropping to as low as 87 cents, as a result of $3.3 billion of reserves held at the failed Silicon Valley Bank (SVB). When USDC holders learned of this, they quickly redeemed over $1 billion of USDC for dollars, causing the price slippage. Tether (USDT), the largest stablecoin by circulation, temporarily lost parity to the dollar for a few days in May 2022, falling as low as $0.9959. A month later it had slipped again to $0.9975. 

Although these fluctuations might appear insignificant at first glance, their repercussions can be considerable for businesses utilising them for payment settlements or maintaining them as an asset. However, it is worth noting that in each of these examples, stability was reinstated promptly, with the peg being restored within a few days.

Algorithmic stablecoins have proved to be less reliable, and are more prone to sell-offs when the market loses confidence. The TerraUSD stablecoin is a high profile example. In May 2022, it became depegged from the dollar and lost almost all of its value. But it is not the only one. Basis Cash, Empty Set Dollar and Dynamic Set Dollar are cautionary tales of when stablecoins go wrong. 

Counterparty risk

Most of the leading stablecoins are issued and administered by a central company. This creates counterparty risk, including inadequate management, operational vulnerabilities and cyber attacks. Though the fiat world is not immune to these risks, businesses customers are more protected by regulation and the benefits of incumbency. The voluntary closure of Fei, a cryptocurrency-backed algorithmic stablecoin, in August 2022 is a recent example of this. At the time it was the 17th largest stablecoin by market cap. The project cited “mounting technical, financial, and future regulatory risks” as reasons for shutting down, with holders of the stablecoin forced to redeem them for Dai. 

More than one third of stablecoins have failed, which should serve as a warning to only trust tried and tested stablecoins with a strong management team behind them. It is also worth noting that traditional financial institutions also fail; in the US alone there have been 564 bank collapses since 2001. In any market, failures can be an important part in elevating the overall quality and safety levels. 

Businesses can mitigate counterparty risk by processing stablecoin-enabled payments and settlements through a third party. The third party, often a fintech, can take on the full exposure to the stablecoin when converting it between fiat currencies. BVNK is one such fintech. Using the BVNK platform for example, businesses can incorporate stablecoins into their fiat payment and settlement flows. 

Regulatory uncertainty

The regulatory landscape surrounding stablecoins is still evolving. Big shocks in the cryptocurrency markets, such as the collapse of FTX and the fallout for businesses that had funds stuck there (eg Genesis Global Holdco filed for bankruptcy owing at least $3.4 billion in unsecured debt) creates contagion for stablecoins. It seems likely that stablecoins will increasingly fall under regulatory scrutiny as governments continue to evaluate their systemic risk.

A new draft bill in the United States proposes that the Federal Reserve approves any non-bank stablecoin issuers, including those located abroad but offering their stablecoins on US exchanges. Among the factors for approval are the ability to maintain and prove reserves backing stablecoins; demonstrable technical expertise and established governance, and initiatives that promote financial inclusion and innovation. In the EU, the new MiCA framework (Markets in Crypto-Assets) is now in force, which subjects stablecoins to new obligations around transparency and consumer protection. In the UK, the new Financial Services and Markets Bill (FSMB) places similar regulatory oversight on stablecoins. Lighter touch policies could include mandating stablecoin issuers to be registered and insured in the same way as banks and other financial institutions

The big stablecoin companies are stepping into line. Tether Limited (issuers of Tether and Tether Gold) has recently taken decisive action to improve the quality and timeliness of financial reporting. Paxos (issuers of Pax Dollar and Pax Gold) is reviewing its operations in the face of a potential SEC lawsuit and an investigation by the New York state banking regulator. And Circle (issuers of USDCoin), considered the most transparent stablecoin issuer, came under scrutiny after a short-lived depegging following the collapse of Silicon Valley Bank, where Circle had over $3 billion on deposit.

Advocates of stablecoins should be encouraged by this direction of travel. Regulation ultimately protects merchants and their customers, and is essential on the path to establishing stablecoins as a legitimate form of payment.

Conclusion

In this article, we ranked and reviewed the top stablecoins for B2B payments and settlements in 2023. To recap, our 11 best stablecoin picks are as follows:

• Tether (USDT)
• USD Coin (USDC)
• DAI (DAI)
• Binance USD (BUSD)
• True (TUSD) 
• Frax (FRAX)
• USDD (USDD)
• Pax Dollar (USDP)
• Gemini Dollar (GUSD)
• Pax Gold (PAXG)
• Tether Gold (XAUT)
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We have selected these stablecoins based on their size. Together, they represent 98% of all stablecoins, measured by market cap. This is an important criteria. As we have read, stablecoins are not without risk. Those with relative maturity, deep liquidity and scale are more likely to withstand market shocks and navigate evolving regulations. Of these 11 stablecoins, those with a fiat-collateralised mechanism (Tether, USD Coin, Binance USD, True, Pax Dollar and Gemini Dollar) present businesses with the easiest way to bridge traditional and cryptocurrency payment and settlement rails, and so support a flexible approach to stablecoin adoption.