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Stablecoins enable users to deal in cryptocurrency while avoiding the volatility that characterises many cryptoassets. Stablecoins can help foster greater crypto adoption by acting as a means of exchange whose value does not fluctuate dramatically from day to day. We’ll compare two popular Ethereum-based stablecoins: DAI and USDC (USD Coin). In 2018, the number of stablecoin initiatives increased substantially. At least one high-profile stablecoin project has already ceased operations. So, how do traders and investors decide which to use?
Dai is a MakerDAO decentralised, collateralized stablecoin that debuted on the Ethereum mainnet in December 2017.
USDC is a fiat-backed stablecoin that was originally launched in September 2018 and is sponsored by Coinbase and Circle Invest.
A stable value isn’t everything. Traders and investors also must have confidence that their chosen stablecoin won’t get wiped out by an unforeseen black swan event.
- USDC is backed by US dollars held in bank accounts.
- In contrast, Dai is backed by ETH held in MakerDAO’s smart contracts. Even though MakerDAO has some of the most secure smart contracts around, traditional bank accounts have a much longer history and better understood risks.
Decentralization matters. When a centralized entity ultimately controls your stablecoin, you risk finding your funds frozen without notice.
- Dai is fully decentralized, and MakerDAO’s smart contracts do not allow anyone to freeze Dai.
- On the other hand, USDC’s user agreement gives Circle the right to freeze your funds at its discretion. You might be confident that you won’t run afoul of Circle’s terms, but the money transfer industry has a history of freezing customer accounts without due process.
A stablecoin can be issued by any firm with adequate resources. A stablecoin, on the other hand, need something more to stand out from the crowd. A committed community may contribute to the creation of network effects, which can make all the difference in the long run.
- MakerDAO – the project behind Dai – has broad support from the Ethereum community and a thriving ecosystem. MakerDAO’s values and plans go beyond mere profit.
- Compare that to USDC, which is a product sold by a partnership between Circle Invest and Coinbase.
If users can’t get their hands on and transact with a stablecoin, it will have a hard time remaining in the market.
- Users can trade Dai on decentralized exchanges (though Coinbase Pro recently began offering a DAI vs USDC trading pair). This makes Dai hard to censor and available to anyone. Also, it aligns Dai’s future with the success of the open finance movement.
- USDC trades mostly on centralized exchanges. Coinbase offers free switching between USD and USDC, but centralized exchanges restrict account access to certain types of people.
Advantage: Depends on who you are
The decision between DAI and USDC is based on your needs! If you are most at ease in legacy financial environments and are unconcerned about being subject to the changing whims of centralised institutions, USDC may be for you. Dai, on the other hand, is a good option if you don’t want a third party to have control over your funds or transactions and believe in the democratising possibilities of open finance.
You can always find the best price for Dai and USDC across leading DEXes with DEX.AG!
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