Women Love Stability and Stablecoins for the 8th of March
The volatility problem makes cryptocurrencies inconvenient for everyday transactions and normal commercial relations. Only in the ten-day period from January 8 to 17, the aggregate capitalization of the crypto market fell from $830 to $417 billion. Shortly afterward, the new TrueUSD stablecoin, which is backed up by the US dollar and a basic pool of assets located in the depository of partner banks, gave a backing shoulder to the weakened market. As the idea of stablecoins suggests, TrueUSD allows one to enter the cryptocurrency market directly without going through the traditional “gate” of Bitcoin or Ether.
“TrueUSD is a tokenized dollar,” says Rafael Cosman, CTO and co-founder of TrustToken, a platform for tokenizing currency and real assets that launched TrueUSD. He notes that “the dollar sitting in the bank” is one of the easiest assets to tokenize, but one of the main features that distinguishes TrueUSD from alternative stablecoins (and the most famous of them is Tether), according to Kosman, lies in the legal framework, which “protects the token holders, providing a strong link between their tokens and the dollars those tokens are backed by.”
The legal framework was developed by the TrustToken team in conjunction with Washington law firms WilmerHale and Arnold & Porter and relies on trust legislation. “TrueUSD backing US dollars are stored in depository accounts insured by the Federal Deposit Insurance Corporation and managed by our partners, trust companies that act as a repository for these stocks,” Kosman said. Accounts are subject to regular audit, and partner trusts include companies such as Premier Trust, Sterling Trustees, Wealth Advisors, and Alliance.
On Tuesday, March 6, TrueUSD was added to the Upbit and Bittrex listings, setting it apart from the masses. During the token’s January 24 launch the team reported that “TrueUSD is available for large traders and exchanges,” while the “full launch” will be held later. “If you are a crypto trader and afraid that the cryptocurrencies will collapse tomorrow, you need something that you can invest in and that it will remain stable. Almost all cryptocurrencies today are highly volatile and correlated, while stablecoins, such as TrueUSD, mean that you can invest and withdraw in seconds, maximum in minutes, and fees will be measured in cents,” says Kosman.
After analyzing the rich history of such tokens, experts have come to the conclusion that the fate of stablecoins largely depends on their “design.” In January, the Multicoin Capital cryptocurrency hedge fund published in its blog a description of three approaches to creating stablecoins. The first, centralized approach corresponds to the Tether model and represents the release of “debt bonds.” Multicoin Capital researcher Miles Snyder writes that such a method can “carry a serious counterparty risk for the holders of the token.” Tether demonstrated this in November, when the company announced that $31 million was “illegally withdrawn” from its wallet as a result of a hacker attack, which was followed by a lingering period of suspicion with requirements of an audit and attempts at scientific analysis, resulting in the questioning of the backing of Tether by American dollars. The second model of stablecoins is more decentralized and uses “secondary backing” with crypto assets. It includes the Dai token, launched by the MakerDAO project on the Ethereum blockchain last December. The cryptocurrency uses smart contracts and is backed by Ether at the same time as it is linked to the dollar. But this mechanism also started creaking shortly after launch, when on January 10, the price of Dai fell below 75 cents on the Chinese Bibox exchange. The third option is equity securities, and the issuance of a stable currency, in this case, is algorithmically increased or reduced in the same way that central banks behave in relation to the currency. Such stablecoins are backed up not by another currency, but only by the expectation that they will retain some value. In this case, they too can be tied to an asset, for example, to the dollar, and as demand for stablecoins grows or falls, the issuance automatically responds to it. These tokens include a “stablecoin with an algorithmic central bank” Basecoin.
Independent consultant and founder of the Monax blockchain project, Preston Byrne, often criticized the concept of stablecoins. Analyzing all three possible models, Byrne writes “Securities backed by cryptocurrencies are the perpetuum mobile of the modern financial system. Stablecoins that are self-backed are a complex and fragile “Nakamoto scheme,” doomed to failure. Stablecoins, which are backed by real assets and properly structured, are no longer stablecoins, but a unit trust.”
TrueUSD’s parent platform, TrustToken, was founded in 2016 by Danny Enom, Stefan Cade, and Raphael Cosman, who is a Stanford alumnus that previously worked for Google and Palantir. The company is supported by the Wallford startup accelerator Start-X, the New York investment fund FJ Labs, and the cryptocurrency hedge fund BlockTower Capital. BlockTower CIO Ari Paul sees great potential in TrueUSD. He says he watched the unmet demand for a more transparent and conformable stablecoins regulations and wants to use TrueUSD in his own company. He believes that the new token will facilitate arbitrage trading for BlockTower.
TrueUSD was launched as part of the TrueCoin project, which aims at global tokenization of real assets. As Kosman reported in January, at the moment the company is working on the tokenization of municipal bonds in conjunction with the Neighborly startup and in the future plans to expand and tokenize other fiat currencies. Kosman notes that the total market capitalization of the New York Stock Exchange is $20 trillion, which is well above the $426 billion capitalization of the cryptocurrency market; however, “the actual trading volumes are approximately equal, in part because of the openness and accessibility of cryptocurrencies.”
“Transferring assets to a blockchain can significantly increase the capitalization of the cryptocurrency market, since the more liquid assets are, the more valuable they are. When everyone can participate in an open protocol, it creates an incredibly liquid ecosystem,” Kosman said.
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