CURRENT SITUATION
Bitcoin is volatile! Crypto traders need to be able to quickly hedge against volatility, getting in and out of positions, but currently there’s too much friction. Also, institutional investors want to be able to confidently put large volumes of money into crypto without immediate exposure to BTC or ETH.
Investors need a non-volatile medium of exchange…that’s credible and trustworthy!
STABLE COINS
In summary – and in theory – a stable coin should give institutional investors the ability to safely and confidently put large sums of money into crypto without immediate bitcoin exposure and quickly trade in and out of bitcoin when volatility is high.
A credible stable coin should offer transparent auditing, be 100% collateralized in USD, maintain 1:1 USD parity, have no conflict of interest with a trading platform and have enforceable legal rights for token-holders, enabling them to sell out immediately.
Unfortunately, the most popular stable coin – Tether – does none of these. Products like Tether aren’t the precedent we want to set for how we build crypto trading infrastructure.
Algorithm-based stable coins
The crypto economy needs diverse options for stable cryptocurrencies. Algorithm-based possibilities haven’t yet been proven in the market. In the long term, there will be roles for both protocol-based and asset-backed stable cryptocurrencies. Crypto startups may be comfortable with algorithm-based stablecoins, but traditional financial companies like Goldman Sachs will prefer asset-backed tokens.
It’s reasonable for investors to want exposure to multiple stablecoin categories, as a bet on the industry’s need for a stable coin. It’s similar to how investors might buy both ZCash and Monero as a way to get exposure to the market’s demand for privacy coins.
ABOUT TRUECOIN
The TrueCoin Project has built a USD-backed stable coin that provides transparent monthly auditing, 100% collateral in USD, 1:1 USD parity and enforceable legal rights for token-holders, enabling the first trustworthy USD-backed stable coin.
The team comes out of Stanford, Palantir, and Google; its backers include Founders Fund Angel, Stanford-StartX, and Blocktower Capital. TrueCoin has developed a legal framework for collateralized cryptocurrencies in collaboration with Cooley and WilmerHale.
OTHER STABLE COINS
Tether – Has proven to be just another crypto company with no transparency and many shady dealings.
- Not USD backed – Tether prints USDT tokens without proving to their holders that they are backed by real currencies.
- No legal protection – Tether states “We do not guarantee any righ of redemption or exchange of Tethers by us for money.
- Audits – Tether was last audited in March of 2017
- Transparency – Tether has not revealed what bank(s) they use to store USD or what jurisdiction they are in.
MakerDao – Dao is an algorithm-based token. Maker uses Ethereum as its collateral. It is fairly complex but on a high level, their protocol creates Maker DAO token upon receiving ETH collateral. The “Dai” created is worth half of its underlying ETH and it ensured that users can always exchange their Dai for ETH, unless ETH more than halves in value. This under-collateralization makes Maker a very fragile system and is also susceptible to black swan events.