Stablecoins — Inherently, Unfixably, Problematic

…And Why Gold on the Blockchain Makes Them Obsolete

Mattereum’s partnership with Sempsa JP, one of the world’s oldest and most respected producers and distributors of precious metals, is enabling us to tokenize gold through our German regulated exchange partner Swarm in quantity, giving investors immutable proof of ownership and provenance so that every token has a traceable, legally enforceable, connection to a specific gold bar in a named vault and warranties relating to its provenance and other qualities, legally valid in 170 countries worldwide. To make it even easier to put gold, or any other high value asset on chain, the Mattereum group, through its German subsidiary Mattereum GmbH has a discount token, MATR*, on sale through Swarm. This gives anyone onboarding assets a discount of up to 50% on their onboarding fees, which is significant when you are talking about gold bars.

With other forms of tokenized gold, the value of the token is backed by gold that remains in the ownership of the token issuer, and you just have to trust that it’s there. With Sempsa gold as an NFT, backed by a Mattereum Asset Passport (MAP), the token buyer indisputably owns the gold to which the token is bound, and their claim to it is enforceable by international law in over 170 jurisdictions. This combines the solidity and value of owning a physical gold bar with the convenience, speed and flexibility of selling NFTs. No more needing to have bars lugged from the seller’s vault to the purchaser’s vault, no more complex paperwork, no more hassle. This is new, this is revolutionary, and it has the potential to kill stablecoins stone dead.

It has the potential to kill stablecoins stone dead

How so?

Stablecoins exist because they claim to offer the convenience of being blockchain tokens, but with the kind of stability that Bitcoin can’t provide, through being pegged to a currency, usually the US dollar, so that the stablecoin always has a set dollar value that doesn’t fluctuate — pegging (an unfortunate term [nsfw!], I know, but given the nature of stablecoins, maybe not inappropriate). As a result, they are meant to act as stable repositories of value against Bitcoin’s wildly fluctuating price. It is not uncommon for speculators who have reaped vast profit from Bitcoin fluctuations to cash out and put the earnings into stablecoin to hold onto the profits instead of trading it in for fiat and putting it in a bank.

So why is tokenized gold better? Why does it make stablecoins dead men walking? Well, for a start, stablecoins are not stable. We’ve already seen that can happen when stablecoins go wrong and depeg, and it was ugly. When TerraUSD and LUNA did it in 2022, it wiped out billions of dollars in value, and there were more than 600 fiat-backed stablecoin depegs in 2023 alone. Not so stable.

There were more than 600 fiat-backed stablecoin depegs in 2023 alone

Tokenized gold done through Mattereum so that it legally bonds the token to a named gold bar — one bar, one token — can’t depeg, it creates a StableNFT that is massively more solid than any stablecoins. Faced with this innovation, stablecoins are already dead, they just haven’t realized it yet.

Let’s dig into that a bit more. So how do you make a stablecoin? Somebody gives you $1 You put the dollar in the bank. They ask for the dollar back, you take the dollar out. Okay, great. That’s fine. How’d you make a living? Well, option one is the bank pays interest, which means it’s lending that money out. And you hoped the bank is stable and doesn’t lend the money to the wrong people. Maybe that’s fine. Maybe it’s not. Option two is to charge transaction fees like Mattereum does on the gold. You give us the gold. We charge a fee. That means that we’re not doing anything stupid with gold. In the meantime, we just hold on to it, we don’t move it, and that costs us some money and we charge that to you. Option three is you give me that dollar and I go and put it into the lowest risk legitimate investment instrument — one of these index funds type things. Now the thing that I told you is worth $1 is correlated to the stock market and if the stock market crashes we’re both toast, but if the stock market booms you get your dollar back and I get to keep all the upside. Then you imagine option three, but with shitcoins, and that’s a stablecoin, and the very, very large providers of stablecoins have problems, because that model is inherently problematic, inherently unfixably problematic; Tether has horrible, horrible lockbox issues. Nobody really knows what’s going on in there. Then USDC had a bunch of money in Silicon Valley Bank. If Silicon Valley Bank had not been bailed out by the US government, they might have had really serious problems — it turns out that they had about 8% of their reserves in that single financial institution, but no one owning USDC knew that until the bank hit trouble. So stablecoins are highly opaque. They’ve proven that they have interdependence with the global financial system and so are inherently volatile. Plus, there may or may not be issues of mismanagement that can be discovered at any time.

So, OK, you could say, that’s why we have central bank digital currencies (CBDCs). They are stablecoins, but unlike the privately issued stablecoins I’ve been talking about above, they are issued by a central bank so are no more likely to depeg than the money in your pocket (I am assuming some of you still use actual cash there). Well, yes, but these still have problems that make gold bound stable NFTs a better option. Like the dollar or pound, or whatever currency you choose, any CBDC linked to those is going to suffer the same problems with inflation that steadily erodes their value, at 2–3% inflation a year, which is less than recent rates, it doesn’t take long for a CBDC to have a fraction of the buying power it once did. Not so with gold, gold value, as I said, is steadily going up, and a stable NFT for a gold bar is going to do the same, so it’s still better than a CBDC stablecoin.

The core problem with privately issued stablecoins is a lack of transparency because you cannot see exactly what your stablecoin is backed by — that is proprietary information to these guys. But this proprietary information is what you would need to have full insight into a stablecoin and be able to do a full analysis and be sure what you were getting for your dollar. It’s not like it’s a small pool of these things — there’s $140 billion in them. What I’m suggesting is that the first criteria that you want for a stable instrument is staggering, bright side of the moon, black and white photography levels of clarity. You want a zero atmosphere full daylight shot of where the underlying asset is. With an on chain gold StableNFT backed by a MAP, that’s what you get. It’s this chunk of solid gold; it’s got this number; it’s in this building here. You own it.

You cannot see exactly what your stablecoin is backed by — that is proprietary information to these guys

In theory, that could be a dollar in a central reserve bank account instead. You can have an account with the US Federal Reserve Bank — you could just say there’s a million dollars in the Fed and million tokens one to one, here’s your deal. You could have a situation where you have an absolutely transparent portfolio. We can say we own a single thing and it is backed with a BlackRock index fund and for every dollar you give us we buy BlackRock index fund; here’s an audit report that says this is exactly what we own. We own 151,000 shares and our current market value x that is more than your reserve. Have a nice day. You could use gold and then it would be dollar price, gold, you give us $1 — we buy gold, when we can show you that there is enough money in the portfolio. We like the gold option, anything even remotely tied to dollars loses value due to inflation. Gold doesn’t — in 1929, ten gold bars would buy the average house, and today, ten gold bars will still buy you the average house.

Anything even remotely tied to dollars loses value due to inflation. Gold doesn’t

There’s no reason that you couldn’t use any single appreciating asset in a very simplistic way. If your asset value goes up, your investment goes up, and if it goes down, so does your investment. What you wouldn’t get with that is any of the fancy schmancy obfuscated hedge fund stuff, where if that asset went down, you are meant to have something else in the portfolio that would go up. Everything balances and you aren’t supposed to lose money, and, hopefully, you gain some. But as soon as we go down that path, we wind up a highly opaque hedge fund that sells portfolios, which are being used to theoretically secure value in an asset that is not supposed to go up and down. So basically, the suggestion here is that you either pick one thing and your stable coin goes up and down to that one thing, or you pick a basket of things and they’re connected by super complicated maths and you have to pray that that thing is stable, and that’s what the grown ups are supposed to do. However, those grown ups are called hedge fund operators. And hedge funds implode all the time. So if you’re going to pick one thing and anchor to that thing, it should either be something like $1 in a Federal Reserve Bank Account, or it could be an index fund object, or it could be something like US Treasury bonds, or it could be a gold brick, but these are the kinds of assets which have extraordinary ease of audit. And then at that point, you either have a token attached to a very large very non-transparent bucket of things or you have a token which is directly attached to a thing which is extremely audited. These are your two choices.

Mattereum has made it easy to have a token directly attached to an asset which is extremely audited. The MAP enables a firm legal binding between the asset and the token, so that ownership is solid and provable. The asset we believe is the absolute best to bind to is gold, so that is what we have done, and we are looking to grow the gold ecosystem, we’re building to increase opportunities for token buyers to own something that really is stable and acts as a repository of value. Also, Gold is steadily going up in value, dollars are getting eaten by inflation, even without all the underlying horrors lurking in stablecoins. The whole sector is just awaiting a deeply horrible, value-incinerating implosion, it’s only a matter of time before something blows away the whole house of cards and reveals the ‘stable’ in stablecoin to be wishful thinking. With the alternative that Mattereum’s gold-bound StableNFTs offer, why take that risk? Do you want to hang around and get pegged by your stablecoins?

Stablecoins are truly dead in the water for those who have eyes to see. Their days are numbered.

Find out more about Mattereum GmbH’s token sale*.

*The Mattereum Discount Token (MATR) is available for purchase through Mattereum GmbH’s fully regulated German crypto exchange partner, Swarm. Buying MATR is subject to terms and conditions in eligible jurisdictions — in particular, residents of the United Kingdom and the United States of America are excluded from the public sale of MATR.