As the latest Motley Fool stablecoin research points out, just a handful of top stablecoins account for 95% of the market cap of the $250 billion stablecoin industry. The two clear leaders are Tether (USDT 0.00%) and USDC (USDC -0.00%), with market caps of $164 billion and $64 billion, respectively.
After these two stablecoin behemoths come a handful of stablecoins with market caps ranging between $1.5 billion and $5.5 billion. Altogether, the top six stablecoins have a combined market cap of about $235 billion. So which of these stablecoins deserve a place in your portfolio?
A simple stablecoin strategy for investors
The choice of a "best" stablecoin really comes down to one single question: How do you plan to use it? For the typical long-term investor, there are two basic use cases: Using stablecoins to pay for everyday transactions, and using stablecoins as part of a passive income yield strategy.
Since the value of a stablecoin is always $1, you should not view it as a typical investment. No matter how popular a stablecoin becomes, or how many people use it, it will always be worth $1.
Image source: Getty Images.
So, with that out of the way, let's just focus on two primary use cases. We can forget about all the ways that short-term traders might use stablecoins, or all the ways that businesses might use stablecoins. We will simply focus on how the average investor might use them.
The best stablecoin for transactions
If you're thinking about using your stablecoins as a way to pay for things, it's really just a choice between the two stablecoin leaders: Tether and USDC. The goal is to find a stablecoin that's accepted as widely as possible. Think about it from the perspective of credit cards. Why would you want to have a credit card that's never accepted anywhere you try to use it?
So, solely from this perspective, USDC is the clear winner. There are simply more places where you can spend your USDC. Yet, it's not like you can walk into your favorite restaurant or retail store and start using USDC. Stablecoins are still in their infancy.
The good news is that there are now some websites where you can type in your zip code, and they will churn out a list of nearby places where you can use USDC. Usually, these are places like barber shops, cafes, and other small local businesses that are trying to reduce their credit card processing fees by accepting stablecoins.
USDC, which is issued by Circle Internet Group (CRCL 4.88%), is starting to line up some high-profile partnerships. For example, Shopify (SHOP -1.42%) announced a new partnership with USDC in June As a result, some merchants using Shopify will now accept USDC as a form of payment.
Just keep in mind: There's a sleeping giant waiting to play a more active role in stablecoin transactions, and that's PayPal (PYPL -2.44%). In August 2023, the company officially launched its own stablecoin, called PayPal USD (PYUSD -0.05%). In the Motley Fool stablecoin research, it comes in at No. 7, with an $923 million market cap. So keep your eyes out for ways that PayPal will look to get more actively involved with stablecoins.
The best stablecoin for yield
Now comes the really fun part: Passive income strategies for making money with your stablecoins. These are typically referred to as stablecoin yield strategies. This describes a broad spectrum of strategies using decentralized finance (DeFi).
Obviously, you can use USDC to generate yield. It's an all-purpose stablecoin that you can use for just about anything. For example, if you hold your USDC on Coinbase Global (COIN 1.54%), it will pay you a "reward rate" of 4.1%.
However, other stablecoins offer the potential for significantly higher yields. One that really stands out is Ethena USDe (USDE 0.01%), which is now the fourth-largest stablecoin by market cap. It started to make waves in early 2024 as the fastest-growing dollar-denominated asset in the history of crypto. In just a few months, it grew to a $2 billion market cap.
Ethena USDe was purpose-built for extracting maximum yield from super-risky trading strategies. In April 2024, Fortune reported that some investors in Ethena USDe were generating triple-digit yields on their stablecoin holdings! The yields were so incredible, in fact, that there is now some debate about whether Ethena USDe should even be considered a stablecoin. Fortune, for example, referred to it as a "synthetic dollar." So buyer beware.
While Ethena USDe has only been around for 18 months, it has already attracted a lot of attention from some heavy-hitters in the crypto world. For example, if you poke through the holdings of World Liberty Financial, the crypto venture affiliated with the Trump family, you will find Ethena (ENA 13.04%), the issuer of Ethena USDe.
The effect of new stablecoin legislation
The really exciting part about stablecoins is that we're just getting started. The passage of the new GENIUS Act this summer was a really big deal. It opens the door to new players getting involved with stablecoins, as well as many more use cases. All that new competition should benefit the average investor.
At the end of the day, my top stablecoin pick is USDC. It's issued by a company (Circle) that's based in the U.S., and the stablecoin is highly liquid, highly regulated, and highly trusted. If you're just getting started with crypto, this should be the first stablecoin in your portfolio.
