We’re hearing a lot about stablecoins right now, but not all stablecoins are created equal. Let’s look at what makes some stablecoins truly stable and why we chose USD Coin as the coin to power our debit card.

Stablecoins are cryptocurrencies that are backed by other assets, which allows them to maintain a 1:1 value to the dollar. What makes each one different is how they maintain their value, or how they are backed. Although methods are evolving every day in this area, there are currently two main ways to do this:

Dollar-backed stablecoins

Some stablecoins are backed by cash reserves and treasuries, similar to the way that the US dollar used to be backed by gold for its underlying value. Basically, this means that there’s a US dollar or short-term treasury backing every dollar-backed stablecoin in circulation, making them instantly redeemable for a US dollar and inherently and consistently stable.

A perfect example of this is USD Coin (USDC), a stablecoin developed by Circle that is fully backed by US Dollars. That’s why we use USD Coin as the foundation of the Voyager Debit Mastercard® and offer up to 9% annual rewards on USDC in the app.*

Algorithmic stablecoins

When a stablecoin is backed with an algorithmic method, it means it’s backed by smart contracts on the blockchain that manage assets to stabilize the coin. This is an innovative new experiment that’s in motion on a few platforms. For example, Maker’s DAI token utilizes multi-collateral backing that requires users to deposit collateral to mint tokens.

Terra (UST), which has never been offered on Voyager, made the news for its recent collapse and recession in the market due to overinflated supply and sell-off. Terra used a different algorithmic method that involved token burning and minting to stabilize UST. As the price of UST began to fall, the circulating supply of LUNA sky-rocketed in an attempt to stabilize the UST peg, which ultimately didn’t succeed. The nature of algorithmic stablecoins and their experimental approach make them less stable than asset-backed stablecoins.

Stability is just the beginning

The ultimate goal of crypto is financial equity and equal opportunity, and stablecoins are a major key to making this happen. It may seem like just a digital dollar, but big-picture, stablecoins are built to accomplish great things. Some are being used to help in economies crippled by inflation, or provide a new, accessible financial blueprint in developing countries. From borderless payments to cost-effective remittances, stablecoins are solving problems around the globe.

Head to the app to add USD Coin (USDC) to your portfolio and earn up to 9% annual rewards.*

Hold and trade with confidence. Your US dollar balances are held by our banking partner, Metropolitan Commercial Bank, and are FDIC insured up to of $250,000. See more details here.

*Note: Users must hold the minimum monthly average in USDC of $100 to earn rewards.


Voyager Cryptocurrency Risk Disclosure

All digital asset transactions involve risk, and the past performance of a digital asset or other financial product does not guarantee future results or returns. Cryptocurrencies are highly speculative in nature, involve a high degree of risk and can rapidly and significantly decrease in value. It is reasonably possible for the value of Cryptocurrencies to decrease to zero or near zero. While diversification may help spread risk, it does not assure a profit or protect against loss. Traders should consider their objectives and risks carefully before trading. Previous gains may not be representative of the experience of other customers and are not guarantees of future performance or success.