How stable is a risky stablecoin?

Getting your Trinity Audio player ready...

There’s a real disconnect between much of the crypto world and the real world. Crypto enthusiasts, and ironically, many businesses in the space are building empires that are largely built on the most outlandish and unbacked ideas. Much of which, would be deemed illegal. One particular ‘classification’ of blockchain assets which have come to light in recent years are what have come to be known as stable coins. The most popular of these is perhaps Tether’s USDT which largely operates on OMNI layer and as an Ethereum ERC20 token (both of which suffer from scalability issues). 

The problem with most modern day stable coins however is that, they heavily rely on ‘trust’. Not your ordinary trust model, but an excessive amount of trust. It was recently told in court proceedings for example, that USDT is only approximately 74% backed by cash. What should only cost approximately 74 cents continues to be worth a dollar across the crypto-sphere.

The concept of the stablecoin is in many ways flawed, but there’s a lot that can be salvaged. First is first, in order for such a token to operate without an impending risk of implosion, the asset must be 100% backed. Secondly, since no blockchain can ever solve the trust model of real world assets, it is fundamentally important that transparency is attained by transparency and through legitimate audits by legitimate organisations – regularly.

The blockchain world needs to stop thinking of such tokens in the cryptocurrency sense, and start thinking of them in the digital certificate sense. Take for example redeemable gold or silver certificates… These certificates exist in the real world and serve to provide a function for investors to buy and sell the underlying asset. This presumes that the underlying asset is redeemable, and that it exists in a verifiable manner.

The blockchain is as close to perfect a solution one could hope for. Unfortunately, the execution of the vast amount of “stable-coins” (most of which have been and are scams) leaves a lot to be desired for. We have on-hand an immutable database, and instead of bringing the trading certificates model onto the blockchain (with all its audits, checks and balances), we instead opted for a new system that is the antithesis of security and everything that blockchain is good for. Stable coin is truly the ultimate in oxymorons.

But this is where I believe Belding’s ‘Tokenized’ system will begin to herald a new direction for many companies that have anything to do with blockchain technology. Tokenized’s whitepaper makes it clear that Tokenized is intended to work within the confines of law and regulatory requirements.

It is of course for companies to take this mantra into their own projects. No honest business would ever want to introduce unmitigated risk to themselves or their clients. Any company that seeks to survive long term would look to operate in the most legitimate manner. Only scams look to operate for short-term gains.

Institutional investors will bring the money to Bitcoin but only when legitimacy in tokenized assets is attained and becomes the norm. Right now, there is work to be done, and it is being done.

However, while this opinion piece pokes holes at the many stable-coin companies and their flawed models, the biggest criticism should in-fact go to the investors and buyers of such tokens. Perhaps a part of the reason is that until now, there has been very little for on-chain options. Bitcoin SV and Tokenized (and other companies as yet unnamed), are about to change all of that.

Eli Afram
@justicemate