One of the most common criticisms of cryptocurrency – including Bitcoin – is that it has no intrinsic value. “That doesn’t mean to say people don’t put value on them,” said Andrew Bailey, Governor of the Bank of England, in a press conference last year. “Because they can have extrinsic value. But they have no intrinsic value… buy them only if you’re prepared to lose all of your money.”
The last few months of market turmoil have given Bailey’s assessment an added prescience. Once valued at roughly $3 trillion in November of 2021, the crypto industry now sits at around $900 billion. A decrease of approximately 70% in just over a year. Ouch.
Of course, by definition, fiat currency also has no intrinsic value either. Its worth is based on an implicit trust of the state and other monetary institutions – like Bailey’s Bank of England. And like crypto coins and tokens, currencies can crash in value too. Ask any Brit, whose currency has plummeted approximately 19% in a year against the US dollar. Or a Venezuelan, who has seen theirs drop 58% against the global reserve currency.
However, one of the key differences between, for example, the British pound and the approximately 20,000 cryptos on exchanges is longevity. England minted the first pound in 1489. While the Bitcoin whitepaper only dropped in 2008. One is attached to a political unit that has existed for over a thousand years. The other is a controversial digital currency associated with a technology still in its adolescence.
Asset-Backed Cryptocurrency: A Better Breed Of Crypto?
In addition to being a medium of exchange, a store of value, and a network incentive, some cryptocurrencies can also function as collateral for loans, tokenize real-world assets or serve as shares in a company. Unlike many crypto coins and tokens, which are based on a shaky value proposition, crypto that is tied to something of tangible value should perform better. At least in theory.
Real-world assets can be anything from gold and silver, to a broader class of assets, like commodities or company equity. A growing number of companies are looking for ways to tokenize their assets to create new investment opportunities for crypto investors. What does that mean, exactly?
Real-world assets like gold and diamonds are illiquid. It’s very difficult to buy, sell or trade a large amount of these assets at once. As a result, it’s challenging to create a large, liquid investment product. However, founders can create a large asset-backed token that can be easily bought, sold, and traded by tokenizing them.
Many believe the tokenization of real-world assets like equities, real estate, and commodities is the next step towards institutional adoption of crypto and DeFi.
Ajay Dhingra, Head of Research and Analytics at Smart Exchange Unizen, believes that:
“Tokenization of these multi-trillion dollar industries will allow traditional financial institutions to leverage the latest innovation in DeFi.”
A Coin With The Backing Of Steve Wozniak
One asset-backed cryptocurrency that has sparked interest this year is Unicoin. Apple co-founder Steve Wozniak even declared an interest, saying it could really open up “the world of startup investment to the masses.” The coin bills itself as the world’s first “asset-backed” cryptocurrency that pays dividends.
The coin is linked to the business show Unicorn Hunters, from the same producers as The Masked Singer. The show allows viewers to invest in pre-IPO companies with extensive vetting by the show’s team. Unicoin then takes a 5% equity stake in all the companies that appear on the show.
Speaking to BeInCrypto, Alex Dominguez, the Chief Investor Relations Officer of Unicoin, is bullish on the future of asset-backed crypto. He believes a huge weakness in the crypto sector right now is an abundance of low-quality coins.
Unicoin’s pitch is that it is registered with the SEC, has a board of directors, pays dividends, and is connected to assets that may grow. A value proposition that mirrors a lot of the benefits of a traditional equity portfolio. “The last I checked we had $175 million worth of accounts receivables over $200 million of purchases of Unicoin before we launch and that’s unheard of, and that’s during crypto winter.”
“We’re really just trying to be diversified, not putting all your eggs in one basket and having a big pool of assets that can actually back the coin,” continues Dominguez. “That doesn’t guarantee success either. Right? I mean, the coin is gonna go up and down. But in times of volatility, we feel that with assets backing us we’re not going to be as volatile as some of those other coins that disappear overnight, or drop 50-60% in one day of trading.”
Not Everyone Is Convinced
Of course, skeptics still exist. Despite the likes of Steve Wozniak and Rosie Rios, former Treasurer of the United States, backing Unicoin, some people that BeInCrypto spoke to thought it would be easier and safer to invest in individual companies.
Others mentioned the relative novelty of asset-backed coins might create an education gap. This could cause naive investors to expect a markedly different return compared to other crypto assets.
“I’d sum it all up by saying asset-backed cryptocurrency would be great if it was decentralized or provably secure but that’s not possible,” says Scott Cunningham, content creator and host of Crypto & Things. “If it’s decentralized then an issue could ruin everything and if it’s centralized then just hold the real asset. Exchanges have done too many malicious things to trust your assets anywhere.”
Cunningham concluded, “All stablecoins currently are awful and the current gold-backed stablecoins are low liquidity and you can’t prove they are really backing it and/or if it’s secure.”
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