Evolution of cryptocurrencies

Part 3. Why gold-backed token will never be a stablecoin.

Gold has been regarded as an eternal value since times immemorial. It’s still a measure of wealth that layers any world’s powerhouse foundations, leverage that caused wars and changed the world’s political landscape throughout the ages.

The last century, however, has brought more changes within the existing world monetary system than all the previous millenniums. After the national fiat currency advents, the digital world with electronic money stepped in roughly 20 years ago, and we have come close to the days when E-money 2.0 is being established with the help of emerging blockchain technology. Nowadays we witness asset fusion process taking place: digital currencies are backed not only by public interest and hype but the particular assets or commodities. Can the past merge with the future success to provide better financial solutions?

Choosing a ground for cryptocurrency’ future

One of the main challenges of creating a stablecoin lies in choosing the underlying asset.

While the concept itself has merit, many stablecoin projects haven’t produced the value and strength anticipated a few years ago, when more and more companies came to the conclusion that unbacked cryptocurrencies can’t lead the future of the digital market. In fact, the majority of the stablecoin projects that were backed by gold have already closed up the shop.

According to Blockdata, a specific revelation can be outlined: fiat-backed stablecoins need to have some type of centralized entity controlling the security and that gold-backed assets have to be able to prove that the gold reserves exist and are stored someplace safe. If a stablecoin is backed by gold reserves, it should be solid enough to not suffer from extreme changes in the market like what other digital currencies witness.

However, gold itself is not a stable asset — it’s a well-known storage of value and a mean of value accumulation in a long time game. How can such an asset be the ultimate measure of value in the future? The fact is, we can draw out an example from Investopedia which points out that gold has no real value, being described as “ seemingly uninteresting, with no intrinsic value other than the value humans have attached it.” This definition erases the think solid line between the arguments that gold has more real value than cryptocurrencies.

Maintaining huge amounts of gold results in nothing but a negative carry — a condition where investments cost more than they bring in over a short-term time frame. This is very expensive and thus, even while maintaining the price per unit of gold, gold-backed tokens are doomed to decaying value.

A rotten underneath of golden-backed stablecoins

Since the had been many stablecoin projects waiting in line since 2017, and stablecoins aren’t subject to crypto market volatility, what are they waiting for? While companies jumped on the crypto bandwagon in droves following Bitcoin Core’s (BTC) meteoric price increase in 2017, the logical choice would have been for those projects to follow suit.

The reality of last year’s market states, that gold is not the best option to choose for the currency of the future. As many gold-backed stablecoin projects have failed, there are certain reasons behind this outcome:

1)Gold-backed stablecoin is derivative for an action that changes in price and, therefore, can be classified as a security.

2)Millennials or the new generation does not and will not rely on old-world values such as gold. Which is nothing but a relic of the past for them?

3)Current Bitcoin generation thinks on crypto to pay for their everyday Latte or shopping rather than gold coins.

4)Gold has a potentially unlimited supply, which is not a feature of the Bitcoin or other crypto assets with a fixed amount of coins that could be mined.

5) We don’t know the exact (or even close) numbers of gold assets held by governments, which are not likely audited — even Fort Knox was never ever audited!

Forging new connections

Thus, we can conclude that by linking a stablecoin to gold, its creators increase the chances of a project failure. However, it’s unlikely that these statistics were reviewed by Steve Forbes, head of Forbes Media when he has advised Facebook leader Mark Zuckerberg to choose gold as security for his Libra cryptocurrency.

In fact, gold represents everything that the new generation stands against. In these circumstances, the new-age global money transfer system can’t be built upon gold since governments have confiscated gold in the 1930s globally, still control the majority of this precious metal, are able to influence the market for gold through their sales and lending.

We can’t say that gold can be 100% replaced by digital assets, as it still represents difficulties. Despite general misconceptions regarding it, it still offers the most lucrative investment opportunities — gold eventually increases in price.

The world needs a new E-currency of the new level designed to provide better options for trading, payments, and transfers. In the fastly-developing world, where digitalization and speed are the kings, there is only a matter of time before such an asset can be created. When stablecoin is being designed, not only the particular underlying assets matter but also a careful calculation of the steps before the launch to avoid legal and governmental pressure projects like Libra are experiencing. Ultimately, gold is not the asset stablecoin issuing companies should look up to, but there are possibilities to tie cryptocurrency to other assets — such as Dollar or Euro.

STASIS team has been working closely with regulators to establish the euro-cryptocurrency which can be accepted globally, to become a trendsetter for global stablecoin popularization.

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