The cryptocurrency market is notorious for its level of volatility. The constant market fluctuations attract swing traders looking to profit but may be driving away the average investor. As such, there is a drive to develop ‘Stablecoins’ or cryptocurrencies with prices pegged to forces outside of the blockchain sphere. Traditionally, Tether (USDT) provided the service through major exchanges – but a new class of Stablecoin threatens that top position. Recent start-up Reserve may give them a run for their money.
The requirements for a Stablecoin are different than the average cryptocurrency. Rather than providing access to decentralized applications or serving as a strict digital currency, a Stablecoin’s value is based on an outside force. In the case of Tether, this outside force is the United States Dollar. Meanwhile, Reserve uses a system of locked crypto-assets to ensure both stability and transparency – something Tether sorely lacks. These cryptocurrency assets, diversified to reduce volatility, are locked in a ‘Vault’ that is verifiable by blockchain.
High Profile Tech Entrepreneur Backs Reserve
Peter Thiel, known both for his co-founding PayPal and his judicial activism, is a super-star in the tech universe. PayPal is still the lifeblood of internet commerce, and his early investment in Facebook helped spark the social media revolution. Thiel is one in a group of over 40 investors that have backed Reserve in their campaign to bring stability to the cryptocurrency market.
Further, fiat-to-crypto mainstay Coinbase have also invested in the Stablecoin start-up. Fully certified in the United States, Coinbase is the public face of cryptocurrency to many outside of the industry. Their carefully vetted trading pairs are a gateway to the market as a whole, and even the rumor of a coin’s addition to their service can cause a spike in prices. They’ve made no announcements to include Reserve, but their investment in the project shows at least some degree of interest.
Reserve vs. Tether
The arrival of Tether had a profound impact on the cryptocurrency market. No longer relying on other cryptocurrencies to avoid price crashes, investors could ‘safely’ store their funds through the use of Tether’s USDT cryptocurrency. Supposedly backed by an equivalent supply of U.S. Dollars, Tether is plagued with constant complaints about their lack of transparency. They have refused a full audit, releasing only the occasional low-value verification from third party accounting services. The lack of an audit has left some investors wary.
Reserve solves the transparency issue through judicious use of blockchain technology. All assets are stored in the form of cryptocurrency, and locked within a system known as ‘The Vault’ to ensure that they continue to provide backing for Reserve itself. While this introduces a certain level of danger – if the crypto-assets lose their value, so too does Reserve – it also allows for unprecedented transparency for a Stablecoin. It remains to be seen if Reserve can hold a stable value without fiat backing, but if they succeed, Tether could face heavy competition.
Article By: Adam Stone