Though the long-term potential for wide-scale decentralized systems shows promise, today’s applications of blockchain are extremely opaque and fundamentally limited in scope. Cryptocurrencies like Bitcoin, perhaps the most widely known implementation of this technology, are attractive investment vehicles for high-risk-tolerance investors and traders. These digital assets have flooded the headlines within the fintech community over the past few months, in some cases giving investors 1000x returns.
Though blockchain-based currencies have rewarded some investors, they are extremely unpredictable. International capital is unwilling to pour heavy amounts of resources down this inconsistent funnel.
While many engineers and investors have experimented with developing a “stablecoin” (an asset that would resist the fluctuations that have plagued cryptocurrencies), no team has yet found viable product–market fit. The biggest challenge, presented by Vitalik Buterin, the founder of Ethereum, back in 2014, is figuring out “how we target a fixed price in a way that is both decentralized and robust against attack.” Most modern attempts at a stablecoin violate these principles.
No one has been able to sufficiently maintain the price parity between stablecoins in circulation and their underlying fiat currency without holding reserves in a centralized bank. For instance, Tether, currently the only widely available token that claims to be backed by U.S. dollars, opts to hold fiat currency in their own bank account, with zero auditing or legal protection for token holders.
The TrueUSD project, created by a team of industry veterans and serial entrepreneurs, aims to be the first and only fiat-backed stablecoin that provides certificates of ownership of USD in a set of multiple audited bank accounts.
This hybrid solution is built for scale, combining the familiarity of USD with the transaction speed, security and international reach of cryptocurrencies.
TrueCoin is effectively the first USD-backed stablecoin to collect USD using a distributed network of bank accounts. Their currency-to-token connection utilizes trust funds, the legal instrument traditionally used for wealth management. Trusts are extremely robust and flexible legal entities that can be used across a wide variety of verticals to provide legal protection for account owners. They provide a convenient vehicle to enforce a legally binding relationship across multiple parties. They are also far more versatile than most other legal entities.
The TrueCoin team has leveraged and developed a system of decentralized trusts that act as their vehicle for managing fiat currency, while simultaneously introducing a fully auditable, legally enforceable and practical means for releasing a stablecoin. Users in the network will have access to a growing set of trust accounts, each managed by distinct professional fiduciaries.
As users add or redeem USD in each trust account, the account will mint or destroy the corresponding tokens. The special provisions of each trust appoint the beneficiaries to an Ethereum smart contract, legally binding trustees to exchange one token for one dollar in the bank account. This means users will have a reliable means to collect USD against their tokens in a highly scalable, reliable and transparent way.
Since there is no single central bank, this system can scale without increasing counterparty or risk of cyberattack. By upholding standards of decentralization, this asset-management network empowers end users by giving them complete control of their assets.
Uniquely, the trustee of each trust fund is legally obligated to exchange the consumer’s tokens for USD, which is enforced by trust law. This transparency and responsibility to the user is a positive indicator for the space and a good indication of the project’s trustworthiness.
The distributed and highly secure architecture of the TrueCoin network has a number of benefits for a diverse range of users. For cryptocurrency to gain mass appeal, major conglomerates must have a practical use for cryptocurrencies as a medium of exchange. TrueCoin provides this by attracting big players with key features. With TrueCoin, financial institutions will feel more comfortable working in the crypto space, because they will be able to use USD and trusts, two vehicles they are familiar with, to make trades.
Crypto-exchanges, an emerging stakeholder in the financial world, will be able to price assets easily in terms of USD, displacing the need for the distrusted Tether. And finally, crypto hedge funds and traders can entrust capital to a stablecoin that hedges against the volatility of the greater market.
As a whole, this network provides the world’s first practical, scalable and reliable means for people who want an actionable use case for blockchain today. Digital assets showcase a number of advantages for users across the world, enabling a new generation of internet-first consumers. It will be interesting to see how TrueCoin and other players in the space go about gaining early traction and scaling their efforts.
