Stablecoins and the Cryptomarketplace

The size of the cryptocurrency market now exceeds US$275 billion (as of mid 2018) and is projected by some analysts to one day exceed US$10 trillion — more than the current value of all the gold that’s ever been mined. However, much of the investment that could help the total coin marketcap reach these aggressive estimates is sitting on the sidelines, waiting for the space to transition from its perception of poorly regulated, ‘wild west’ territory to joining mature markets with predictable risk and estimable opportunity.

Stablecoins are a part of this solution. Because of their underlying ties to a national currency, hard asset, or other stable source of value, they can serve valuable use cases for investors and users as a stable medium of exchange within the cryptocurrency space and allow traders to buy and sell other cryptocurrencies easily without having to convert back into a national currency or re-enter the traditional banking system. Without stablecoins, moving in or out of a position in cryptocurrency can result in a taxable event or otherwise be troublesome due to jurisdiction-specific regulatory issues. As such, stablecoins are so vital to the continued expansion of the cryptocurrency market that some have called a reliable, secure stablecoin the “holy grail” for the cryptocurrency market.

Along with more than a thousand cryptocurrencies in existence, a number of stablecoins have been developed recently to help traders navigate the cryptocurrency space. However, each of the stablecoins currently in operation has some drawbacks that limit mainstream adoption. Some claim to hold US dollars or other fiat currency as a backing to maintain their value, but they are not directly redeemable for currency or any other asset, and transparency across the board standards are severely lacking. Other stablecoins utilize a basket of other cryptocurrencies to maintain a stable value, but this system is susceptible to major volatility in the cryptocurrency space and may not give traders the stability they seek. Still others are backed by nothing at all. While the purpose of a stablecoin is to introduce stability and trust into a volatile and largely unknown space, institutional investors are unlikely to utilize a stablecoin unless it is backed by (and redeemable in) something substantive.

A Stablecoin Backed By Gold

USDVault is the first and only stablecoin to be pegged to the US Dollar and backed by & redeemable in gold, specifically constructed to address shortcomings where other stablecoins have failed to deliver. Instead of using fiat or cryptocurrencies for the backing, USDVault is 100% backed by physical gold stored in Swiss vaults and is fully redeemable in physical gold. To protect against volatility in the price of gold relative to US dollars, the fiduciary partners of USDVault maintain both physical gold in Swiss vaults and a gold hedge. This ensures there will always be enough physical gold to cover all USDVault in existence. USDVault is also far more transparent than other attempted stablecoins; it is fully-audited and KYC/AML-compliant, making it easier for institutional wealth to engage in the cryptocurrency space while maintaining standards expected by their clients and regulators.

Why Back By Gold?

What’s so special about gold? Gold has provided a stable backing for global markets from ancient times into the 21st century. In every civilization which has had access to it, gold has acted as a steady store of value, especially during periods of uncertainty or instability. Its value is ensured not just because of its scarcity, but also because of high demand from both investors and consumers alike.

Today, gold still plays an important role in financial markets. It is trusted by investors worldwide as a “flight to safety,” i.e. the price of gold often rises in relation to national currencies when investors are uncertain or detect danger in the market. Gold is often treated as a liquid asset similar to cash for the purposes of covering debts or pledging collateral and viewed by the BIS and various leading regulators as a cash equivalent.

Until very recently, most national currencies (including the US dollar) were backed all or in part by gold; the US dollar lost its partial ties to gold in 1971, and the Swiss franc maintained a partial backing by gold until 2000. Today, these currencies are backed only by the credit of the governments that issue them. So while you can’t directly redeem US dollars or Swiss francs for a bar of gold anymore, you can indeed redeem USDVault for physical gold stored in Swiss vaults or fiat currency, facilitated by Vault’s fiduciaries. In this way, USDVault is unique among both fiat and cryptocurrencies in that it can be redeemed for physical gold.

Other Benefits of Redeemability in Gold

Redeemability in gold also allows investors to trade cryptocurrency while staying insulated from the traditional banking system. The USDVault tokens themselves are considered “deposit receipts” for dollar value equivalents of physical gold held in Swiss vaults, giving each token a stable store of value and an enforceable claim on the underlying asset. Further, redeemability in gold adds an added layer of security for investors against risk in the fiat currency, banking irregularities, governmental/legal disputes, and other issues that are associated with fiat storage in the traditional banking system.

The amount of gold that can be redeemed for USDVault will fluctuate slightly with the price of gold in US dollars. As such, USDVault can effectively act as a hedge against other positions in either dollars or gold. These properties give USDVault significant advantages over other stablecoins, especially for more traditional or institutional investors looking to make a foray into cryptocurrencies.

Conclusion

Cryptocurrencies are still a new innovation in finance, having arisen in just the last few years from technological conjecture to a rising asset class with the potential of mass-market adoption. USDVault has the potential to drive this adoption forward, serving as an original instrument that viably reintroduces the link between cryptomarketplaces with the oldest and most stable financial asset in history: gold. With its 1:1 US Dollar peg, gold backing, transparent accounting practices, and simple redemption for physical gold bullion or fiat, USDVault effectively reinvents the gold standard for cryptocurrency markets and can offer a meaningful pillar of stability around which continued growth and financial innovation in the cryptocurrency space can flourish.