Teach you step by step to choose stablecoins to avoid capital evaporation

1. Understanding the categories of stablecoins

Stablecoins can be roughly divided into the following three categories according to their anchoring method:

• Fiat currency collateral type (such as USDT, USDC): Each coin has corresponding US dollars and other fiat currencies as reserve support.

• Crypto-asset collateralized (such as DAI): issued using other cryptocurrencies (such as ETH) as collateral.

• Algorithmic stablecoins (such as UST): adjust the currency price through algorithms to maintain the peg with fiat currency.

Recommendation: Give priority to fiat-collateralized stablecoins because they have lower risks, followed by crypto-asset-collateralized stablecoins, and algorithmic stablecoins have higher risks.

2. Look at the organization behind it and the transparency of the audit

A good stablecoin must be backed by a credible institution and sound fund reserve management. If you don't even know who is behind it, the risks of such stablecoins are extremely high.

• USDT (Tether): Issued by Tether, although it is the largest stablecoin by market capitalization, it has faced questions regarding reserve transparency multiple times.

• USDC (Circle & Coinbase): Issued by Circle, has high reserve transparency, and is subject to strict regulation in the U.S.

• BUSD (Binance USD): Issued by Binance, but has recently been affected by regulatory scrutiny in the U.S.

Recommendation: Choose stablecoins that have third-party audits and publicly available reserve proofs, such as USDC and DAI.

3. Risk identification checklist

(1) Legal and regulatory risks

• Some stablecoin issuing institutions may be subject to government sanctions or investigations, such as the recent regulatory issues with BUSD.

• Prefer stablecoins issued in regions with transparent regulation and mature legal frameworks.

(2) Reserve risks

• Ensure that their reserves exist in cash or highly liquid assets (such as government bonds), rather than speculative assets.

(3) Smart contract risks

• For decentralized stablecoins (like DAI), confirm the security of the contract and whether it has undergone authoritative audits.

4. Operation tutorial: Selection and use of stablecoins

Step 1: Clarify needs

• If you just want to preserve asset value, choose USDC or BUSD.

• If used as collateral in DeFi, DAI is more suitable.

Step 2: Verify the source

• Purchase through reputable exchanges (like Coinbase, Binance) or wallet apps (like MetaMask). Do not trust small platforms, to avoid counterfeit coins.

Step 3: Monitor market dynamics

• Regularly monitor news about stablecoins, such as issues with USDC's reserve transparency and regulatory pressures on BUSD, to ensure you hold safe assets.

5. Three major strategies to avoid fund evaporation

1. Diversified selection: You can choose multiple stablecoins such as USDC, DAI, TUSD to reduce the risk of a single stablecoin collapse.

2. Priority on fiat-backed: Try to avoid unstable algorithmic coins, as examples like UST have already demonstrated extremely high risks.

3. Regularly change storage methods: If you find potential issues with a stablecoin or platform, promptly transfer to a reliable platform or wallet.

Recommended portfolio solution:

• Long-term holding: 70% in USDC as the main risk-averse asset.

• Diversify risks: Use 30% to invest in DAI to participate in DeFi for returns, increasing flexibility.

• Backup strategy: Keep a close eye on TUSD as a potential alternative option.