Stablecoins are a category of cryptocurrencies that peg their value to stable assets such as the US dollar, gold, or other fiat currencies in order to reduce price volatility. These digital currencies, due to their relative stability, are a suitable option for investors and traders looking to preserve the value of their assets against the extreme fluctuations in the cryptocurrency market.
Stablecoins are used on various exchanges and platforms for trading, payments, and value storage. Since Tether (USDT) is one of the most popular stablecoins, many people are looking for alternatives that are considered more secure, transparent, and financially backed.
Challenges of Tether for Iranians
Using Tether for Iranian users can be challenging for the following reasons:
Sanctions and Banking Restrictions
One of the main challenges of using Tether for Iranians is economic sanctions and banking restrictions. Many large exchanges and financial platforms that support Tether are unable to provide services to Iranian users due to these sanctions. These restrictions can make the process of depositing and withdrawing funds from Tether accounts problematic for Iranians and complicate access to it.
Transparency and Backing Issues
Another challenge is concerns regarding the transparency and financial backing of Tether. Many Iranian users are skeptical of this cryptocurrency due to the lack of full transparency regarding its reserves and auditing processes. These concerns can lead to reduced trust in Tether and an increased willingness to use alternative options.
High Conversion and Transfer Costs
For Iranian users, another challenge with Tether is the high cost of converting it to rial or other fiat currencies. Due to banking restrictions and issues with international exchanges, the process of converting Tether to local currencies or other cryptocurrencies can be associated with high fees and take a significant amount of time.
Price Volatility in the Market
Although Tether is designed as a stablecoin, short term fluctuations and changes in how it is backed can cause slight price variations. These fluctuations, even if small, can pose a challenge for Iranian users who are seeking financial stability. Additionally, in specific economic conditions in Iran, even stablecoins may face their own set of issues.
Technical Issues and Access to Services
In Iran, due to internet restrictions and censorship, accessing certain trading platforms and digital wallets that support Tether may be difficult. These technical issues can complicate and delay the process of conducting transactions with Tether for Iranian users. As a result, many Iranians are looking for platforms that offer easier and uninterrupted access.
Impact on DeFi
Tether’s limitations are not only confined to direct transactions but have also impacted some DeFi protocols, such as GMX, which have restricted the use of USDT.
Given these challenges, it is essential for Iranian users to explore alternative options to Tether so they can transfer part of their assets to other stablecoins.
Legal Risks
Due to international sanctions and legal restrictions in Iran, using Tether may come with legal complications. Many international exchanges and financial platforms are unable to offer services to Iranian users because of the lack of clarity regarding Tether’s legal status. This issue can limit access to this stablecoin. Therefore, Iranian users should carefully follow the regulations related to cryptocurrencies to avoid potential legal risks in the future.
What are the alternatives to Tether?
Below, we will review the alternatives to Tether:
DAI
The DAI stablecoin is a decentralized digital currency created by the MakerDAO protocol, and it is fully backed by the US dollar. Unlike many stablecoins that are backed by assets stored in banks or financial institutions, DAI uses an automated system based on smart contracts on the Ethereum blockchain, which automatically adjusts its value to match the dollar.
Advantages:
- One of the advantages of DAI is that it is completely decentralized, meaning no central entity can influence it, which increases its security and transparency.
- Additionally, DAI offers high flexibility and allows users to perform digital transactions in a secure environment.
- DAI is used as a primary asset in liquidity pools of decentralized exchanges such as Uniswap.
- The coin issuance is managed and regulated by the Maker Protocol, which is a subsidiary of MakerDAO.
- This currency is built on the Ethereum ERC 20 protocol and is compatible with all Ethereum wallets.
Disadvantages:
However, one of the disadvantages of DAI is that its system requires complex management from users, and during times of severe market volatility, human intervention or changes to smart contracts may be needed to maintain price stability. This can increase the complexity and additional risks in using DAI.
USD Coin – USDC
DAI is a decentralized stablecoin issued on the Ethereum blockchain by the MakerDAO protocol. Unlike many stablecoins backed by physical assets such as the US dollar, DAI uses an automated system based on smart contracts to maintain its value relative to the dollar. This feature makes DAI a fully decentralized stablecoin that is not controlled by any specific entity and relies on a self regulating system.
Advantages:
- Transparency and Oversight: One of the biggest advantages of USDC is its transparency. This stablecoin is regularly audited by trusted auditors, and detailed financial reports on its reserves are published, which enhances user confidence in this digital currency.
- Backing by Real Assets: USDC is fully backed by the US dollar, which provides users with a greater sense of security regarding its reserves.
- Wide Usage: This stablecoin is accepted as a valid currency on many exchanges and financial platforms, allowing users to easily use USDC for digital transactions and payments.
Disadvantages:
- Centralization: USDC is managed by Circle and under the oversight of central entities, which can raise concerns about centralization and dependency on government institutions.
- Dependence on the US Dollar: USDC is dependent on the US dollar, which may experience volatility due to economic conditions such as currency fluctuations or changes in US financial policies, potentially affecting its stability.
- Legal Restrictions: The use of USDC may be subject to legal restrictions, especially in countries that are implementing stricter regulations on digital currencies. This issue could limit users’ access to this stablecoin.
Neutrino USD – USDN
Neutrino USD is a stablecoin developed by the Neutrino protocol based on the Waves blockchain. This stablecoin is designed to maintain price stability against the US dollar and is fully backed by digital assets. USDN is specifically developed for trading and use within the Waves ecosystem, operating through automated algorithms and adjustments to maintain its price stability.
Advantages:
- Decentralization: One of the biggest advantages of USDN is its decentralized structure. Unlike some stablecoins controlled by specific entities, this digital currency uses automated systems and smart contracts to maintain its stability, meaning its control is not in the hands of a central entity.
- Backed by Digital Assets: USDN uses digital assets as its backing, providing it with greater flexibility and potentially attracting more users and investors in the cryptocurrency ecosystem.
- Access to the Waves Network: Due to its reliance on the Waves blockchain, users can take advantage of the specific capabilities of this network for fast and low fee transactions, enhancing USDN’s utility across various ecosystems.
Disadvantages:
- Limited Adoption: USDN is primarily usable within the Waves ecosystem, and this limited adoption can reduce its utility on other exchanges and platforms, potentially restricting access for users outside this network.
- Dependence on Digital Assets: USDN relies on digital assets as its backing, which can lead to price fluctuations of the stablecoin if the value of its underlying assets changes. This feature can reduce its price stability during market fluctuations.
- Lack of Transparency: Unlike some other stablecoins that are overseen by trusted financial entities, USDN may lack transparency in certain cases, which could raise concerns among users regarding its security and stability.
Frax – FRAX
FRAX is a unique stablecoin that is known as the first hybrid stablecoin, using two different methods to maintain its price stability against the US dollar. This stablecoin is developed by the Frax Finance protocol and combines an algorithmic model with a collateral system to manage supply and demand. FRAX is specifically designed to provide a flexible approach to stablecoins and, due to its innovative structure, has garnered significant attention within the cryptocurrency community.
Advantages:
- Long Term Stability: One of the main advantages of FRAX is that it combines both an algorithmic and collateral model to maintain its value against the US dollar. This model can create greater long term stability and prevent extreme volatility in varying market conditions.
- Transparency and Algorithmic Clarity: The FRAX protocol, by using a transparent algorithm to adjust supply and demand, provides high transparency in managing the supply of this stablecoin. This feature increases user confidence in the processes behind this digital currency.
- Supply Control: Since FRAX precisely adjusts its supply based on market conditions and user demand, it effectively avoids market pressures and can adapt to changes in demand.
Disadvantages:
- System Complexity: One disadvantage of FRAX is that its hybrid system, due to the combination of an algorithm and collateral, can be complex for some users. This complexity might discourage some individuals from using this stablecoin.
- Dependence on Demand and Supply: While FRAX uses an algorithmic system to maintain its stability, it may still be affected if there are significant changes in demand or supply. This feature could lead to minor fluctuations in its price.
- Dependence on Widespread Adoption: Despite its innovation, FRAX’s adoption on exchanges and platforms is still not as widespread as larger stablecoins like USDT or USDC. This issue could limit its use and hinder its broader expansion in global markets.
USDe
USDe is an innovative stablecoin specifically designed for use in digital platforms and ecosystems, fully backed by the US dollar. This digital currency has been developed to maintain its value against market fluctuations and provide a reliable option for digital trading. USDe uses automated algorithms and collateral models to precisely maintain its price relative to the dollar, offering users security and confidence in their transactions.
Advantages:
- US Dollar Backing: USDe is fully backed by the US dollar, which increases confidence among users. This stablecoin can be an ideal option for individuals seeking to protect the value of their assets against market fluctuations.
- Transparency and Oversight: USDe offers high transparency regarding its financial backing, allowing users to easily track its reserves and backing status. Regular audits and reporting on its reserves enhance user trust in this digital currency.
- Use in Digital Ecosystems: Due to its broad usability across various platforms, users can utilize USDe for transactions, payments, and digital transfers with low fees, enhancing its efficiency and utility in different ecosystems.
Disadvantages:
- Dependency on the US Dollar: One of the main drawbacks of USDe is its complete reliance on the US dollar. If there are significant economic changes or extreme fluctuations in the value of the dollar, the stability of this stablecoin may be affected.
- Adoption Limitations: Although USDe is usable on many platforms and exchanges, its adoption is still limited compared to more widely recognized stablecoins like Tether (USDT) and USDC. This could result in limited usage and access in various markets.
- Centralization: Like many stablecoins, USDe is managed by a central entity, which may raise concerns for users seeking decentralized options. This feature could reduce trust in this digital currency in some communities.
TUSD
TUSD is a well established and trusted stablecoin that is fully backed by the US dollar and issued by TrustToken. This digital currency is built on the ERC-20 standard and uses the Ethereum network for fast and low cost transactions. TUSD is continuously audited by reputable auditors to ensure that each unit of this stablecoin is backed by one real US dollar, making it a trusted option among stablecoins.
Advantages:
- Legal Support and High Transparency: One of the biggest advantages of TUSD is that it is fully backed by the US dollar, and its reserves are regularly audited by reputable auditors. This transparency increases user confidence in this stablecoin.
- Compatibility with Different Networks: Since TUSD supports the ERC-20 standard, it is easily usable across various wallets and platforms, allowing traders to perform transactions without worrying about network changes.
- Security and Global Use: The use of TUSD in digital trading and global transactions, without worrying about price fluctuations, makes it an ideal option for transferring funds internationally.
Disadvantages:
- Dependence on the US Dollar: Like other stablecoins pegged to the US dollar, TUSD is vulnerable to fluctuations in the dollar. This feature could reduce its price stability if the dollar undergoes economic or political changes.
- Centralization: TUSD is fully managed by a central entity, TrustToken, which may be concerning for users seeking decentralized digital currencies.
- Functional Limitations: Although TUSD is reliable in terms of transparency and financial backing, its use in decentralized financial (DeFi) networks is more limited compared to some other stablecoins, which could reduce its popularity in certain communities.
Pax Dollar – USDP
When discussing the best alternatives to Tether, Pax Dollar (USDP) cannot be overlooked. This stablecoin is fully backed by the US dollar at a 1:1 ratio and was launched in 2018 by Paxos Trust, the same partner of Binance that collaborated to issue Binance USD. Currently, Paxos Trust manages the Pax Dollar (USDP), which was previously known as Paxos Standard (PAX). With a market value exceeding $110 million, Pax Dollar ranks 420th in the cryptocurrency market.
Pax Dollar is built on the Ethereum network and supports the ERC-20 standard. Like Binance USD, it enables fast, global transactions anywhere in the world. As a result, users can perform their transactions quickly and securely without any restrictions.
Advantages of Pax Dollar (USDP):
Pax Dollar, due to its full backing by the US dollar, has high price stability and reliability. This feature makes it a suitable and secure option for blockchain transactions in the digital world, without the concern of severe price fluctuations.
Additionally, Pax Dollar’s transparency is another strong point. This digital currency is regularly audited by trusted auditors to ensure the validity of its backing, with each Pax Dollar being supported by one real US dollar. This transparency and strict oversight help foster greater trust among users and investors.
Disadvantages of Pax Dollar (USDP):
Despite its significant advantages, Pax Dollar also has limitations. As a stablecoin, Pax Dollar does not have the potential for price growth, making it less appealing for those seeking high return investments.
Furthermore, since Pax Dollar is under the oversight of Paxos Trust, it may not be a suitable option for individuals seeking fully decentralized digital currencies that are independent of central entity oversight. Additionally, the applications of Pax Dollar are more limited compared to other cryptocurrencies used in decentralized finance (DeFi).
How Stablecoins Reduce Volatility Risk
Stablecoins significantly reduce volatility risk in the cryptocurrency market due to their direct peg to stable assets such as the US dollar or gold. These digital currencies naturally prevent the extreme price fluctuations commonly seen in other cryptocurrencies.
By using stablecoins, traders and investors can preserve the value of their assets against sudden market changes, thereby protecting themselves from large losses caused by volatility. Additionally, stablecoins act as a tool for fast and secure fund transfers between exchanges and wallets with low fees, which also helps in mitigating risks associated with volatility.