Price volatility is arguably the biggest obstacle for mass adoption of cryptocurrencies by mainstream retailers. Proposed solutions have generally sought to create a coin which can hold value over time.
The Steem blockchain created the Steem Dollar which, in theory, is pegged to the US Dollar through use of an interest rate mechanism that itself is tied to the creation of new Steem, the main currency which underpins its blockchain. However, in practice, prices have fallen to as low as $0.8 and to as high as $10.
In 2014 Ethereum founder Vitalik Buterin wrote an article called “The Search for a Stable Cryptocurrency” identifying the volatility problem that makes cryptocurrencies a poor safe haven for average investors.
Arguably the most successful stablecoin to date has been Tether though that fell prey to theft from hackers. Much more stable than the Steem Dollar, it was pegged to the US dollar through real underlying assets that were associated with the issuance of the Tether coin.
However, even if this was a relatively successful experiment, Tether was only as stable as the US Dollar itself which is exposed to the usual inflationary and macroeconomic forces at work in the global economy.
Diversified Assets Approach
A new ICO from Arc Reserve in Jersey think they may have found an answer. Aiming for $5 million, all proceeds from the initial coin sale will be diversified across other asset classes like US Treasuries, real estate loans and a bundle of stable international currencies.
The coin will have an intrinsic value and will be tied to a basket of goods that tracks the aggregate inflationary behaviour of the G10 countries.
Co-founder Stephen Findlay, formerly of Fidelity, described this as a “new era for the crypto-ecosystem” and has described the ARC coin as a “crypto-security” rather than a cryptocurrency.
The hope is that the token will provide a store of value in high-inflation environments like Venezuela and Zimbabwe. Estimates show that 2 billion people currently live in countries with wealth-eroding inflation, a potentially lucrative market for a successful stablecoin.
The coin will also be fully regulated and classified by Jersey authorities [Jersey, Channel Islands – Ed] as a debt security.
Findlay described Jersey as “one of the most forward-thinking and co-ordinated jurisdictions for cryptocurrencies” and said they had “enabled an important initial step in regulating the issuers of future crypto assets”.
Jersey, the British crown dependency off the coast of France, has become well known as a home for financial services, including many British hedge funds attracted by the warmer weather and low taxation. Regulators there are confident that it may also become a new home for ICOs.