What is Hybrid Cryptocurrency? And how It can Revolutionize the Crypto Industry?
By Nagaya Technologies on The Capital
With Digital Currencies becoming the talk of the town, people are seeing the potential for them to become the perfect alternative to the current financial system.
As per 2019, market adoption of Cryptocurrency is 237.1 billion U.S. dollars, up from the 2018 value of 128.78 billion.
But we got to ask, what is the percentage of these are investors willing to bet on it long-term? What percentage of these coins will last more than 10 years?
Even with Digital Currencies, both standalone Cryptocurrencies and Stablecoins have their own pros and cons.
So, what is a Hybrid Cryptocurrency and how can they revolutionize the Cryptocurrency Industry by solving the challenges their 2 predecessors are still struggling with?
First, let us talk about General Cryptocurrency
By this stage, I am sure you already know what a Cryptocurrency is. You can read more about it here for more details.
Cryptocurrencies are created to fill in the shoes of today’s financial system and solve the issues of the loopholes it created. But how successful has it been?
90% of Token Start-ups will fail. — Vitalik Buterin.
What does this mean?
Not all Cryptocurrencies are good for long-term investments, majority will flunk.
Another major issue in Cryptocurrency is Volatility. Because majority of Cryptocurrencies in the market today are practically not backed by any assets, they’re extremely volatile and very prone to adverse price movements.
Is this a bad thing? Not always.
Traders benefit the most from this. They are the ones who sit down in front of their computer screens to watch market movements daily.
So, if you’re thinking of buying a coin and sitting on its long term, majority of Cryptocurrencies in the market are not for you.
Now, let’s talk about Stablecoins.
What’s a Stablecoin?
A Stablecoin is a Cryptocurrency that is backed by a “Stable” asset or a basket of an asset. In this type of Cryptocurrency, an asset is chosen to “peg” or “hedge” the Cryptocurrency, so their price remains stable. Think collateral in the case its price drops. More on that here.
Stablecoins provide the solution that the Cryptocurrency world desperately needed, stability.
However, there is a limitation to this. One of which arises from their own strength, price Stability is a turn-off when it comes to investing and investors are better off holding the assets that back them up as compared to the Stablecoins. Agreed?
So, who benefits from Stablecoins? Again, Traders.
Traders peg their cryptocurrency with Stablecoins in-terms of a massive fluctuation and use them as an exchanger to cut out on the exchange rate.
So, is there a solution that marries the benefits of Cryptocurrency and Stablecoins together serves as the optimum option for Investors?
This is where HYBRID COINS comes into the picture.
Hybrid Coin is a type of Cryptocurrency that combines the benefits of general Cryptocurrency and Stablecoins together. In this, the Cryptocurrency is backed with physical assets and real projects that builds Stability, but not at a fixed rate which still allows it to increase in value.
Unlike its 2 predecessors, the equity cycle of a Hybrid Coin is unique. Unlike a Stablecoin that is backed on a fixed scale (Eg: Tether claims that they are backed 1:1 with the US Dollar), the rate which backs a Hybrid coin is not fixed. Moreover, the proceeds from the Public Sale of the Cryptocurrency is usually distributed equally among the Asset Reserves (Eg: 50:50 among Physical Asset and Real Projects).
Why are Physical Assets and Projects important?
Now, there have been claims that Cryptocurrencies would last for the next century, replacing the current financial system and being the “currency of the people”.
But what if it does not happen and it’s nothing more than a bubble?
At this stage, no one can be 100% sure that Cryptocurrencies will last for the long run, and what we can do is to hope for the best.
One of the biggest threats to any cryptocurrency, including their king Bitcoin is that the government could just ban the usage of Cryptocurrencies altogether. End of story.
What happens to the investors’ money already put into these currencies? They’ll be flushed down the drain.
The beauty of a Hybrid Coin is the availability of Projects and Physical Assets which acts as the Hedge. In investing, a Hedge is an investment that is put to protect from adverse price movement.
When it so happens that the Cryptocurrency fails to perform in the market, and Vitalik has claimed it will happen to 90% of Tokens in the market, investors are able to get their money back in the form of the assets backing up each Currency.
And at the same time, due to the availability of the Projects, it allows further re-investment of profits to allow the physical assets backing each currency to increase with time.
This is literally the best option out there for long-term value investors who see a potential in Cryptocurrency, want to invest long term but are worried by the volatility of Cryptocurrencies. When they win, they win big. When they lose, they lose small.
What are the criteria for a Good Hybrid Coin?
Here are the 5 Criteria for a good Hybrid Coin to sit in for long term.
What are the assets backing up the Cryptocurrency? What value do they possess?
The benefit of a Hybrid Coin is that the asset that backs each currency up should be at the same time stable and allow for its increase. Thus, it is imperative for the reserve to be a solid asset that would hold the Currency’s Intrinsic value instead of just relying on market sentiments.
The best reserve out there is Gold. This is why.
What about another Cryptocurrency?
They are not solid enough to be made into a backup, as majority of them themselves are not backed by anything. Thus, it makes it very risky for the long term.
How transparent are they with their numbers?
Where are the assets stored?
Where are they based?
Are they audited by a third-party auditor?
Is the audit result published on their website regularly?
These are some questions you must get answered before deciding to invest into Hybrid Coins. Remember, we are putting our money on the line for a long time.
Another equally important factor to consider is the kind of Projects backing it up.
There are some Cryptocurrencies that are backed by a Cryptocurrency Mining Company. So they use their Currency to “crowdfund” from the public and re-invest them into these mining companies.
This is similar to the point we spoke above. If the Cryptocurrency itself is not backed by any assets, what makes us think that a Cryptocurrency Mining Firm would be of any value come the worst-case scenario?
The most ideal kind of Projects include Physical Projects, including Physical Mining, Properties or Physical businesses. More on this here.
How is their equity cycle working? How is the Project affecting the Currency?
You can have a Cryptocurrency backed by one of the most solid kinds of Assets and Projects there can be, but if the Projects aren’t directly linking to the growth of the Cryptocurrency’s growth, there’s really no point. That means the Cryptocurrency is nothing but a crowdfunding platform.
The 2 most ideal functions of Project Profit Allocation include:
1. Give out Dividends to Cryptocurrency holder
2. Increases the Asset Reserve backing up each coin.
There are several coins that claim they will be accepted as a payment method by both vendors and users. They highlight this as their USP and further out their potential in the future.
This is NOT a potential for growth. Yes, market adoption is a sweet concept for the overall function of a Cryptocurrency, but they wouldn’t provide growth in value for investors.
When it comes to Potential, the question you need to ask is,
How can this coin grow because of their INTRINSIC VALUE vs MARKET SENTIMENTS?
When a Cryptocurrency is valuable on its own, market starts to create a price assumption that’s not based on mere demand and supply, but due to its potential for growth. Just like how Gold is a valuable good on its own, thus keeping its value stable even in the most trying times.
This is HIGHLY determined by the Assets and the Projects backing up the Cryptocurrency.
In times of a crash, liquidity of an asset is one of the most important factors for an investor.
A lot of Cryptocurrencies out there claim to be backed by either Project, Gold, or FIAT Currencies.
That is an incredibly good concept, but can we really redeem the asset claimed to backup each currency?
Therefore, Transparency is an especially important factor for a Hybrid Coin. Otherwise, the assets are nothing more than pictures and numbers on a screen.
Hybrid Coin is there to solve what their 2 forefathers struggle with: Price Stability but still allowing room for long-term growth.
When these 2 factors are solved, Cryptocurrency Exchanges will not be filled with just Traders, but also Value Investors who will become HODLERS.
To know more about NAGAYA Hybrid Coin, visit our site here.