Recently, cryptocurrencies have been swinging up and down, and the crypto-economy has yet to make a cryptocurrency whose price is stable. Though many experienced technologists have attempted to bring a stable cryptocurrency to market, no team has yet figured out a means to uphold the price parity between a network’s active supply of coins in circulation and its underlying fiat currency without violating core tenets of decentralization.
For instance, Tether, one of the more controversial projects in this space, initially positioned itself as a one-stop shop for the crypto community, assisting online merchants to trade between various international currencies. They have now raised hundreds of millions of dollars to finance their project. The Tether infrastructure, however, is such that their underlying coin reserve (of Tethers) is held in a single, unaudited bank account.
This opaque, single-hub structure poses a number of serious security threats and reliability concerns. Their architecture was hacked in November 2017, when the Tether team revealed that a “malicious attacker had stolen $31 million from their treasury and sent them to an unauthorized bitcoin address.” This incident highlighted a dramatic network vulnerability, reinforcing the importance of decentralized storage. This, however, is not a unique critique of Tether’s system.
Bloomberg reported that “Skepticism had already been building around Tether after the Hong Kong incorporated company said in April that U.S. dollar wire exchanges of funds had been blocked. That fueled concern about whether the tokens were fully backed by fiat currencies. Critics have also raised questions about Tether’s relationship with Bitfinex, an online exchange that has also been hacked.”
Furthermore, the Tether team fails to ensure the safety of their product. In the legal section of their website, Tether claims that, because they are an independent entity, “There is no contractual right or legal claim against us [Tether] to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money.” If anything were to go wrong with assets stored on their network, you would have no strong defense or even proper jurisdiction to file a lawsuit against them. Clearly, a lack of trust and security is a primary limiting factor for the Tether network.
The TrueCoin project offers a much-needed replacement for Tether. An emerging blockchain startup founded by former Stanford, Palantir and Google engineers, TrueCoin has developed the world’s first “USD-backed stablecoin that is 100 percent collateralized, legally protected, and transparently audited.” Importantly, they uphold security standards of decentralization, while providing a highly transact-able and accessible cryptocurrency.
Their coin hinges upon the implementation of legally binding digital trusts that provide the perfect balance of stability (as they enforce a contractual agreement between multiple parties) and flexibility (as they are more flexible than most other legal entities) to the network. Unlike centralized bank accounts, trusts can be wholly insured such that token holders are comprehensively protected under trust law.
To add an extra layer of reliability, TrueCoin has implemented an Ethereum smart contract to automatically mint or destroy tokens in accordance with a deposit or withdrawal from one of the trust accounts on their network. According to the token’s contract, trustees are legally able to redeem TrueUSD tokens for fiat USD. This allows users of the token to spend and accept cryptocurrency in the real world without friction.
The TrueCoin network implements strong measures to ensure network safety. In the long run, making crypto easier to exchange with fiat will drive mainstream adoption and lift the entire crypto-economy.
This application is particularly promising in evolving markets, such as Argentina and Zimbabwe, that have seen wildly fluctuating national currencies and extreme hyperinflation over the past decade. TrueCoin’s stablecoin has the potential to make a serious impact in these developing economies, providing citizens with a highly accessible, transferable and stable asset.
We will probably see the wide-scale adoption of digital assets across a variety of use cases, including financial services (such as loan origination), salaries and international remittances. Crypto-traders and crypto-exchanges will benefit from the emergence of a stablecoin that can be used to hedge against the volatile nature of alternative coins.
It will be interesting to see how the TrueCoin team scales their vision over the next few months. They have already secured partnerships with influential blockchain investors, such as Ari Paul from BlockTower Capital. Their mission is to empower everyone to take part in the crypto-economy by introducing a secure, trustworthy and scalable solution that can be used by token holders today. The blockchain community will be eagerly watching this technology mature.Opinions expressed here by Contributors are their own.