What are Asset Backed Cryptocurrencies ?

In the beginning of 2018, the entire cryptocurrency market dealt heavy losses when the total market capitalization of the cryptocurrency market fell down abruptly from nearly $800 million to just $400 million in January alone. Such high volatility and uncertainty makes it difficult for investors and traders to trade frequently or invest long term in cryptocurrency.

Pretty much all cryptocurrencies are highly volatile today, so developers are continually trying to create digital currencies that are less volatile and can be trusted by everyone. The idea of a less volatile cryptocurrency has led to the development of what is called Stablecoins.

Stablecoins

Stablecoins, as the name implies, is a class of cryptocurrency whose values are kept stable by pegging them to another real world asset. The real world assets used to back these coins are generally precious metals like gold, silver and copper, as well as real estate.
Stablecoins have collateralized stores of value that fully back the price of that cryptocurrency so due to the removal of uncertainty about whether or not a platform will be successful and gain revenue, the assets are protected by tangible stores of value.

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Some of the stablecoin options have even included smart contracts in the blockchain that they operate under. This ensures transparency in the system and no forgery or corruption can ever enter the system.

Since the cryptocurrency market does not have stable price prediction for coins, the stablecoins are becoming popular in the crypto market because of their less volatility. This could eventually give the cryptocurrency market the required stability that has eluded it over the last few years.

Stablecoins are still new, but they can prove to be a great alternative in future for cryptocurrencies that have extremely low prices, because consumers always prefer to hold on to some sort of real world asset that pegs the value of their digital tokens.

Couple of examples of a stablecoin are DigixDAO and Atlant Real Estate Token –

DigixDAO

DigixDAO is a Decentralized Autonomous Organization (DAO) created by DigixGlobal (a Singapore based company) that functions as a platform for trading tokens backed by Gold. DigixDAO is built on Ethereum platform that stores physical gold for each token issued on the Ethereum Blockchain. It provides a transparent and secure platform to tokenize gold and other physical assets.

ATLANT Real Estate Token

Atlant is a real estate platform that provides secure trading of property and also bypasses intermediaries in rental deals. Users of ATLANT can buy unique, property-specific cryptocurrency tokens that represent partial ownership of a given real estate asset. The properties from all over the world are listed on the ATLANT platform, which gives investors the ability to speculate on specific locations that could see a surge in value and to diversify their portfolios in order to minimize risk.

Challenge with Asset backed Cryptocurrency:

There is an obvious challenge to the concept of asset backed cryptocurrency – to prove the existence and ownership of real world assets which are backing the tokens. It has been seen with many stablecoins backed by Fiat or Gold where the proof of assets proportional to the tokens was not there.

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The solution for this to have a decentralized and smart contract enabled ecosystem that manages the real world assets. This enables transparency and proof of ownership of assets at all time so that the token holders are not duped. For example, for Gold, there should be a traceability solution using Blockchain and Smart Contracts that manages the movement, storage, buy and redemption of Gold by various stakeholders in the supply chain. The immutable audit trail of all the transactions should be available in tokenholder’s dashboard or wallet.

The Future

Stablecoins are definitely making a mark in the cryptocurrency market. The idea that they provide stability by holding a physical asset pegging their digital tokens are bringing in investors who want a more stable and a less volatile cryptocurrency platform. It is a great platform being utilized by more and more traders and investors nowadays. In due time, stablecoins will achieve widespread distribution and adoption.

Prolitus has been a leading company for building scalable and innovative solutions for crypto-ecosystem including decentralized exchanges, asset backed cryptocurrency or crypto-tokens, asset sale platform etc. If you are looking to build a next generation asset backed cryptocurrency platform, contact us.

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