Tag Archives: virtual currency

virtual currency

Stablecoins

Stablecoins are normally pegged to fiat money like the U.S dollar. Due to their low volatility, they are frequently used by investors to purchase crypto assets like Bitcoin through virtual transactions that can be settled rapidly.

Tether is the leading stablecoin used by crypto exchanges across the globe, with an estimate market share of 75%. Other popular stablecoins include USD Coin (run and managed by a consortium that include Circle and Coinbase), Paxos Standard (has been approved by the New York State Department of Financial Services.), Gemini Dollar (being offered by the exchange run by the Winklevoss twins).

A class of programmatically issued collateralized digital currencies are emerging, most are either backed by fiat reserves ($USD) or by other digital assets such as ether ($ETH).

Fiat-Collateralized

As most stablecoins are currently pegged to the US dollar, the large majority of projects have decided to use US legal tender as the source of collateral for the issuance of their tokens.

Fiat-collateralized stablecoins retain their 1:1 peg by utilizing trusted third parties to hold an equivalent amount of legal tender in reserves.

New stablecoins are minted when a party deposits USD into the issuer’s reserve. Similarly, when a redemption request is made, the issuer will send the buyer USD and burn the redeemed stablecoin.

The most commonly used fiat-collateralized stablecoins include but are not limited to:

  • Tether ($USDT) – A fiat-pegged stablecoin built on top of Bitcoin via the Omni Layer Protocol. Each Tether issued into circulation is said to be backed by a one-to-one ratio with the equivalent amount of fiat currency held in a custodial account by Hong Kong-based Tether Limited.
  • USD Coin ($USDC) – Fully collateralized US dollar ERC20 tokens founded by CENTRE,  a joint venture founded by Circle and Coinbase. USDC is an open-source project which operates within US money transmission laws. The project uses established banks and auditors while leveraging Ethereum-based smart contracts.
  • Paxos Standard ($PAX) – Backed one-to-one by USD deposits and available through Paxos. PAX is available one-to-one in exchange for USD and redeemable one-to-one for USD. Upon redemption, PAX tokens are immediately removed from the supply; PAX are only in existence when the corresponding dollars are in custody.
  • TrueUSD ($TUSD) – A USD-backed ERC20 stablecoin that is fully collateralized, legally protected, and transparently verified by third-party attestations. TrueUSD uses multiple escrow accounts to reduce counterparty risk and to provide token-holders with legal protections against misappropriation. TrueUSD is the first asset token built on the TrustToken platform.
  • Gemini Dollar ($GUSD) – Created at the time of withdrawal from the Gemini platform. Gemini customers may exchange US dollars for Gemini dollars at a 1:1 exchange rate by initiating a withdrawal of Gemini dollars from their Gemini account to any Ethereum address they specify.

Crypto-Collateralized

Rather than being backed by legal tender, crypto-collateralized stablecoins hold currencies such as ether ($ETH) in escrow for the issuance of new tokens. In doing so, users have the ability to mint and burn tokens without needing to utilize or trust a centralized third party.

While the trustless nature of these stablecoins is quite appealing to the decentralized notion of many cryptocurrency projects, it does come with a drawback. Where fiat-backed stablecoins only need to hold 1:1 reserves in legal tender, this subset of stablecoins often require over-collateralization to account for price volatility. Most commonly, this ratio is set at 150%, meaning that in order to issue $100 worth of $DAI, you will need to post at least $150 worth of $ETH as collateral.

The most commonly known crypto-collateralized stablecoins include but are not limited to:

  • Maker Dai ($DAI) – Dai is a crypto-collateralized ERC20 token backed by an excess amount of digital asset collateral (most commonly $ETH) through Maker Vaults. Dai utilizes smart contracts and a governance token, $MKR, to monitor price stability.
  • Synthetix ($sUSD) – Previously known as Havven, Synethetix is a crypto-collateralized network enabling the creation of on-chain synthetic assets on the Ethereum blockchain. These assets are over-collateralized to provide sufficient liquidity for users to redeem collateral at face value. Beyond $sUSD, Synthetix plans to offer stablecoins for other legal tenders such as the euro, yen, and the Korean won.
  • Reserve tokens ($RSV) – Hybrid-collateralized token backed by both fiat and digital assets. Initially built on Ethereum, Reserve tokens aim to be interoperable across any blockchain in the future. Similar to Maker Dai, Reserve tokens utilize a governance token, $RSR, to monitor price stability in a decentralized fashion.

Non-Collateralized (Algorithmic) Stablecoins / Seigniorage

Seigniorage-style coins utilize algorithms to control the stablecoin’s money supply, similar to a central bank’s approach to printing and destroying currency. Seigniorage-based stablecoins are a less popular form of stablecoin.

Significant features of seigniorage-style stablecoins are:

  • Adjustments are made on-chain,
  • No collateral is needed to mint coins,
  • Value is controlled by supply and demand through algorithms, stabilizing price.

A team of anonymous developers is making what might be called a fork called Basis Cash based on the stablecoin Basis (originally  known as Basecoin) that had $133 million in funding before U.S. securities regulators stepped in and the team behind it returned everything in late 2018.

  • Basis Cash ($BAC) – Like most stablecoins, Basis Cash (BAC) is pegged to the U.S. dollar, so one BAC should be equal to the crypto equivalent of one USD. Basis Cash’s price will be managed by two other crypto assets: Basis Bonds and Basis Shares. Originally 50,000 BAC was distributed over a five-day period to folks that deposit any of these five stablecoins into its smart contract: DAI, yCRV, USDT, SUSD and USDC. If BAC should drop below a dollar, the system will issue Basis Bonds. Those Basis Bonds can be bought for one BAC. They can also be redeemed for one new BAC when the price is above a dollar. For example, if BAC were to drop to $0.97, a user could buy a bunch of BAC at that discounted price and redeem them for the bonds (which burn the BAC). That reduces the supply and should bring it back in line with the peg. Then, when BAC goes over $1.00, new BAC gets issued. The system first lets bondholders redeem them (so if someone bought bonds at $0.97 they should get at least a 3% profit) and the rest of the fresh BAC goes to holders of Basis Cash Shares. Though to get the new BAC (the seignorage), BAS holders have to stake their shares in the Boardroom, another smart contract. From the documents it seems to rely on Uniswap price data.
  • Carbon ($CRBN) – Some projects like Carbon modify the seigniorage shares model. In Carbon, users can elect to freeze portions of their funds to manage contraction and growth cycles. Some projects issue bonds, but simply pay out new stablecoins to all users, pro rata, when all bonds have been paid and supply must increase still. Each approach to the seigniorage shares model has its own set of challenges. Carbon is conceptually similar in design to Basis. However, Carbon uses Hedera Hashgraph which could potentially provide it with significantly higher throughput and speed.

Conclusion

For the average user, stablecoins provide a reliable medium of exchange for now.

Fiat-backed stablecoins can never be censorship resistant, permissionless and trustless. The risk for further regulatory / government interference related to fiat-collateralized stablecoins should not be under estimated. Gemini USD and Paxos Standard (PAX) Stablecoins, are the most highly regulated of all the fiat- backed / asset-backed tokens. They are subject to the terms contained In the source code which include the right of forfeiture or seizure if required by law enforcement.

Over time, as the open financial system grows, DEXs gain market share and dApps gain adoption, crypto-native stablecoins will win on the merits of censorship-resistance and value sharing, with Maker’s Dai currently leading the way.

The biggest benefits dollar-pegged algorithmic systems like Basis have over crypto-backed systems is their capital-efficiency and increased profit potential. Capital-efficiency should make it easier for the system to respond to sudden growth in demand, while the profits can be shared with many stakeholders who should be motivated to support and drive the ecosystem forward.

Most of the key innovations will come from crypto-backed and algorithmic backed / seigniorage based stablecoins

Geir Solem

The Revolution – The Bitcoin Protocol

This is the seventh video in this series called “Bitcoin as a Disruptor”. The Bitcoin protocol, a game changer beyond the Bitcoin currency itself, as it opens the door to innovation without permission. Decentralized consensus, were currency is only the first application…..

Presentation by Andreas Antonopoulos, The Bitcoin Foundation. Source ID GC

We continue to look at the even bigger picture, the jaw dropping changes that bitcoin could provide in what we would call a revolution.

Like the Internet itself, Bitcoin will change everything.

The concept of a decentralized network that could achieve consensus (agreement) without any central controlling authority was an unresolved problem in computer science called the Byzantine Generals’ Problem. The Bitcoin protocol solved this problem in 2008 and that in itself is truly revolutionary.

Bitcoin is the Internet of money and the Bitcoin currency is only the first application. At its core Bitcoin is a revolutionary technology that will change the world forever.

Geir Solem
Cryptor Trust Inc.

Why Bitcoin’s Growth is Normal & The S-Curves You Could Never See

Economists are up in arms, claiming that bitcoin’s 1000% annual growth is faster than anything they’ve ever seen.

Source World Bitcoin Network

Because of that, they lash out, calling bitcoin volatile, a bubble, a pyramid scheme, etc.

But don’t worry, we put on our investor glasses, compare the 4.5-year-old bitcoin to facebook, twitter, google at the same periods in their growth. The result is that Bitcoin’s growth is as exponential, as volatile and as normal as any enormous tech giant. And just for fun we threw in a little bit about rats reproducing on a desert island.

Geir Solem
Cryptor Trust Inc.

Bitcoin Revolution

This is the sixth video in our series called “Bitcoin as a Disruptor”. When people talk about bitcoin, they talk about a revolution. But Is it really a revolution to have lower fees on credit cards and remittances? While these are big changes, they are hardly revolutionary..

Now we begin to look at the even bigger picture, the jaw dropping changes that bitcoin could provide in what we would call a revolution.

Source World Bitcoin Network

Bitcoin provides anonymous payments better than anything we’ve seen online. But what few realize is that Bitcoin also does transparency, and it does transparency better than anything we’ve ever seen in human history.

This transparency is the focus of this first video looking at bitcoin as a revolution. Because bitcoin is the first ever tool (in human history) that can provide provable transparency, we could finally see transparency explode via the free market (competitive edges given to those who disclose). This one simple change seems innocuous but it could have major repercussions.

No future may be stranger or more earth shattering than the inherent capabilities of bitcoin to provide a free market for transparency. And this isn’t transparency like we are used to, this is the possibility of absolute financial transparency. Not only would it eliminate the need for the IRS, but it stands to erase corruption and improve government.

Geir Solem
Cryptor Trust Inc.

 

3 Elements that influence Bitcoin Value

Where does bitcoin value come from? Lets take a look at 3 elements that are intrinsic to bitcoin’s nature.

network
Image Source – InoHow.co.uk

Bitcoin as a New Disruptive Technology – VALUE ELEMENT #1

Bitcoin as a currency, as a payment system and as a stock cannot be separated from its nature as a new revolutionary technology.

Leaving technical concepts apart, the bitcoin system provides the base for:

– Transferring money with low or none cost to any place in the world. Global acceptance and distribution!

– Empower people to become their own bank, removing the dependance on financial institutions. Freedom!

– Empower people currently out of the banking system. Democratic!

– Avoid the deflationary effects of traditional currency. Buying power!

– Pay for goods and services while protecting your personal data. Security!

Continue reading 3 Elements that influence Bitcoin Value

Credit Cards – How Bitcoin Could Take Over a Trillion $ Market

This is the fifth video in our series called “Bitcoin as a Disruptor”.  We look at the advantages for merchants accepting bitcoins over credit cards.

Source World Bitcoin Network

We look at five features where bitcoin’s inherent features could take over 5 different trillion dollar markets. This video gives you a quick history on the evil aspects of credit cards, then looks at the SEISMIC changes offered by Bitcoin.

Geir Solem
Cryptor Trust Inc.

The End of Western Union? – Bitcoin’s Features are Game-Changers in the World of Remittances

This is the fourth video in our series called “Bitcoin as a Disruptor”.

Ever since people have tried to send money home, perhaps 10,000 years, there have been sharks in the water trying to gobble it up. The same is true today.

Source: World Bitcoin Network

Western Union, Money Gram and others make billions each year off the poor families sending money to even poorer countries. Bitcoin can change that better than any tool the world’s ever seen. With 500 billion sloshing around in the remittance markets, there’s a lot at stack. Further it seems likely the market would be even bigger, perhaps 1 trillion if there were no fees. This is a real game-changer.

Geir Solem
Cryptor Trust Inc.