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Unlike other stablecoins, which are only backed by cash and U.S. Treasuries, Tether uses a mix of cash, commercial paper, and other assets to stay pegged to the U.S dollar. It submits its summaries of those reserves to a third-party accounting firm, but it hasn’t opened up its books to full audits yet. That lack of total financial transparency — along with its controversial ties to China — makes Tether a more opaque investment than many other USD-backed stablecoins.

Ripple USD isn’t a centralized token like Tether, which is directly minted by Tether Limited. Instead, each token is an “IOU” issued by individual gateways (like Bitstamp and GateHub) on the XRP Ledger. Those IOUs stay pegged to the U.S. dollar because they’re backed by the cash in the issuers’ own bank accounts.

When you buy Ripple USD, you need to check the reputation of the issuing gateway. If that gateway fails because it didn’t have enough cash to back up its IOUs, you could forfeit that money — just like how you could lose your savings if a non-FDIC-insured bank fails. So even though Ripple USD is diversified across a wide range of gateways, it’s still a trust-based system.

Ripple USD might be a better stablecoin if you regularly use the XRP Ledger for payments or bridge currency transactions. But if you’re simply looking for a safe stablecoin to buy, hold, and lend out for interest or use in dApps, then Tether is a better buy. It’s more widely used, compatible with the top blockchains, and doesn’t run on individual gateways.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.

Better Stablecoin Buy: Tether (USDT) vs. Ripple USD (RLUSD) was originally published by The Motley Fool