Fundamental Analysis: TrueUSD (TUSD)

Overview

Currency CodeTUSD
Transaction Start Date06/03/2018
Circulating Supply206,479,601
Market Cap209,464,949 USD
Protocol TypeStablecoin
Where To BuyBBOD, Cashierest, Binance, DigiFinex

TrueUSD (TUSD), the first asset issued by the TrustToken platform, is an ERC20 stablecoin pegged to the value of the US Dollar that utilizes a distributed network of trustworthy escrow accounts to fully collateralize client funds, ensuring TUSD is consistently backed 1-1 by USD fiat reserves. The use of numerous escrow accounts as opposed to one centralized bank provides token-holders with accountability of funds at all times and legal protection against any misappropriation, ultimately reducing counterparty risk. Trust firm accounts in the network are required to publish their fiat holdings publicly on a regular basis and are subject to monthly attestations. To further the confidence that users funds are safe third-party security audits of trust firms are consistently carried out by world leading auditors for best security practices.

Although TrustToken recognizes that making use of escrow accounts is certainly not the end game to a truly decentralized stablecoin, they appear open to exploring other possibilities once the cryptocurrency ecosystem matures enough for such a solution to be achievable. Ultimately, in a market where firms such as Tether (USDT) have taken advantage of user funds by providing no proof of solvency while storing fractional reserves in one centralized account, TUSD appears one of the most viable options for traders to hedge their portfolio against often extremely volatile market conditions.

Problem To Solve

Untrustworthy Stablecoins

Up until recently, there was little debate over whether one could trust a specific stablecoin. With so much noise in the space and profit to be made, individuals were simply too distracted to comprehend the relative safety of their funds. Over the past year, however, such an outlook has predominantly changed, which can largely be attributed to the Tether (USDT) scandal that began in 2017 and continues to unravel in the cryptocurrency market today. After an investigation from both avid cryptocurrency community members, namely Bitfinexed, and now more trusted investigative journalists such as Bloomberg and The New York Times, it has become apparent that Tether was likely used to inflate prices during the 2017 bull market benefiting exchanges such as Bitfinex who possess dubious ties to USDT. Perhaps more importantly for market participants, however, has been the clear acquisitions of the “Fractional Reserve Baking” method being utilized, where only a fraction of USDT funds is verifiably backed by money in a physical bank account. Continuing to add doubt to this debate, is Tethers inability or unwillingness to provide regular audits for their users, questioning the solvency of their funds altogether. Moreover, the inability to withdraw funds on exchanges such as Bitfinex and Kraken on certain occasions has spooked users who now want reassurance that their funds are verifiably safe and so are actively looking for new stablecoin alternatives. While numerous stablecoins are now battling to become the new pegged cryptocurrency of choice, which stablecoin will prosper will likely reflect firms who clearly tackle the failures of USDT. Ultimately, becoming the newly trusted counterparty for traders the ecosystem needs.

Choice of Collateral

The underlying technology of stablecoins can be categorized into three key areas: fiat-collateralized, crypto-collateralized and non-collateralized. All models possess their own unique strengths and weaknesses and so it is what market they wish to facilitate or the philosophy of their founders that ultimately determines which category a stablecoin falls under.

Fiat-Collateralized Stablecoins

First, fiat-collateralized stablecoins such as TrueUSD and Tether are rooted in a similar fashion to traditional fiat currency issued by a bank, they simply represent an IOU for a specified amount of money. As such, each stablecoin token equates to the equivalent value in USD (or any other fiat currency), 1 fiat collateralized stablecoin = 1 USD/other fiat currency. This method is perhaps the most viable option for a stablecoin at current, the cryptocurrency market continues to be extremely volatile and fiat reserves can provide the stability that simply no other type of stablecoin can achieve as if the cryptocurrency market collapses the reserves remain in fiat and so are unaffected. The model also has the ability to be highly regulated and so one can be more likely to receive legal discourse from the issuer if the stablecoin fails to hold value. This is all well and good if you can trust the party which has issued the stablecoin, but ultimately you are once more relying on a centralized party to determine your financial fate. As such, continual audits carried out by independent third party firms are essential to ensure that funds are indeed solvent.

Crypto-Collateralized Stablecoins

Second, crypto-collateralized stablecoins such as MakerDAO’s DAI. This method aims to circumvent the traditional fiat system altogether by providing a specified cryptocurrency as collateral as opposed to a fiat currency. In this manner, centralized intermediaries can be avoided altogether and a stable currency can exist without needing any entity to rely on other than the cryptocurrency market itself. The caveat to this solution is that as everyone is fully aware of, the cryptocurrency market is especially volatile, and so if the market crashes, measures must be in place to ensure enough reserves are held. The way to mitigate such a ‘black swan’ event is to over-collateralize the stablecoin so that it can absorb extreme price fluctuations. If the price fluctuation of a crypto-collateral reaches a certain point of instability the balance will automatically get liquidated, managed entirely by the blockchain. Although this seems to ensure the security of funds at first, the catch 22 is positions will be liquidated back into the cryptocurrency that was chosen for collateral, for example, Ethereum, which would likely be almost worthless in the case of such a ‘black swan’ event. Companies such as MakerDAO are beginning to try to mitigate this risk by multi-collateralising DAI against numerous different assets, but until this proof of concept proves to be a success, it cannot be shown to be the most secure stablecoin in the market.

Non-Collateralised Stablecoins

Finally, non-collateralised stablecoins, which are simply not backed by collateral whatsoever. This idea is akin to when the Gold standard was removed in the US and the transition to fiat money began. No longer was cash backed by Gold in a secure location, instead, parties simply had to trust the government that they were good for their word, the money was available if needed and no individual needs to be concerned. After numerous cases of government failure in countries such as Zimbabwe, Venezuela and more recently Turkey, however, It is clear that the ability of governments to control the money supply in certain parts of the world is broken. As such, to consider such a model for a cryptocurrency stablecoin becomes even less appealing. If one cannot trust certain governments to keep funds safe, then placing that authority in the hands of a for-profit cryptocurrency firm seems at best irresponsible. Basis is a perfect example of a non-collateralised stablecoin failing to foresee the regulatory requirements necessary for the success of such a project, recently being forced to return all funds to investors.

Store of Value

Perhaps the most obvious problem that stablecoins aim to mitigate is the extreme volatility the cryptocurrency market has shown since its inception. Although this may be extremely beneficial for experienced speculators, the continual fluctuations in the market value of cryptocurrencies ensure they are currently a useless store of value. Until the market matures enough so that well-known cryptocurrencies such as Bitcoin are akin to traditional assets such as Gold, one can expect the value of their account to fluctuate by double-digit figures in a single day on a regular basis. Ultimately, this stifles real-world adoption as the cryptocurrencies we know today cannot be used for regular transactions unless businesses and consumers want to take on unnecessary risk in the hopes of long-term profit. Moreover, individuals who live in countries with corrupt governments are not interested in speculating in order to profit, they simply want to utilize the revolutionary technology that is blockchain as a store of value to escape their collapsing economy while maintaining the value of their assets. At current, cryptocurrencies such as Bitcoin and Ethereum cannot offer them that guarantee.

Tokenization of Real-World Assets

Outside of corrupt states, a reliable store of value will become increasingly necessary as roughly $256 trillion worth of real-world assets begin to become tokenized. Such a process is already starting to take place, with tokenization occurring in key markets such as real estate, commodities, securities and fine art at current, with the list only set to expand as individuals strive to transact value with one another on a global scale using tokenization to offer innovative investment opportunities such as shared ownership. What is lacking for the success of tokenization, however, is a definitive store of value that cryptocurrencies themselves cannot yet provide and perhaps never will. For tokenization to prosper, a stablecoin which is consistently audited, that offers guarantees over the underlying assets with full collateral and possesses legal consequences for bad actors and remunerations to affected parties is essential. Up until recently, no stablecoin in the market offered such advantages.

Solution

A Trustworthy Stablecoin

Fully Collateralised

Whereas Tether has decided that only fractional reserves placed in a centralized location are necessary for their product to function effectively, TrueUSD has implemented full collateral for their clients using a distributed network of trust company escrow accounts. Such a prospect is extremely more robust as it ensures every TUSD that is minted is fully collateralized by USD ensuring client funds are safe at all times. The system works as follows, every time an individual decides to purchase TUSD they must clear their USD through one of the trusted decentralized escrow accounts, the corresponding USD is then held in that account ready to be retrieved any time the client deems necessary. If USD is redeemed the escrow fund burns the associated TUSD ensuring there is a continuous 1:1 ratio between TUSD in circulation and USD in the escrow accounts. This is a considerably superior offering to what Tether has chosen to provide its clients where one can never be certain whether the USDT is not only fully collateralized but backed by physical USD at all. Besides Tether not being verifiably fully collateralized, centralization of funds in one single bank account is incredibly risky as it is far more prone to being hacked as a single point of failure. TrueUSD tackles this head-on with it’s distributed network of trusted escrow accounts, a traditional banking protocol that has worked effectively for high value accounts for a considerable amount of time.

Consistently Audited

Although Tether now provides some transparency of their funds to the public, the fact that this is an internally organized audit furthers the question of the solvency of their funds altogether. Such a publication could easily be corrupted by those within the organization if they perceived they were at risk of losing their current market dominance. To combat such an issue TrueUSD provides regular audits to the public which are carried out by trusted third-party companies with no skin in the game. In the unlikely event that TrueUSD was proved to be insolvent, they would be called out by such trusted third parties who would not be willing to risk their reputation to uphold a company which they have no fiduciary responsibility for. This provides TrueUSD clients confidence that their funds are undeniably safe.

Legal Protection

Further to the never-ending scandal of Tether, in certain instances, clients have been unable to withdraw USDT from exchanges such as Bitfinex and Kraken in order to exit the cryptocurrency market for fiat. Ultimately, this has left experienced traders unable to withdraw funds at specific times where the market appears to be turning bearish. This leads those individuals to lose out on profit that they should be legally entitled to. The trusted escrow accounts which hold TrueUSD would be held legally accountable in such instances if they could not exchange client funds for fiat at a specific instant. Although placing TUSD on centralized exchanges does not necessarily guarantee any legal action will be taken if funds cannot be withdrawn when chosen, such initiative with their escrow accounts should force centralized exchanges to follow suit if they wish to retain clients moving forward.

Choice of Collateral

A Verifiably Safe Fiat-Collateralised Stablecoin

Fiat-collateralized stablecoins currently seem to be the most viable solution to ensure the absolute safety of user funds if designed correctly. As previously mentioned, TrueUSD is fully collateralized utilizing a distributed network of trusted escrow accounts which are consistently audited, and legally responsible for the loss of any of its client funds. Ultimately, TrueUSD appears to have learnt from the failures of their predecessors by tackling each and every issue that one might be concerned with when placing their trust in a centralized authority. In fact, it could be argued that TrueUSD itself is decentralized, as although the company is clearly centralised, the way in which client funds are managed in a decentralized network of accounts ensures that a single point of failure is avoided and detaches the company from the process of minting and burning TUSD altogether.

A Definitive Store of Value for Real World Adoption

As a fully collateralized, regularly audited and legally backed stablecoin, TrueUSD appears to provide the cryptocurrency ecosystem with the essential attributes that are necessary for real-world use cases. For example, for those who are seeking to escape corrupt regimes or increasingly volatile fiat currency situations, TUSD appears a viable hedge which would be definitively more secure than holding USD cash reserves in person. The distributed network of escrow accounts that TrueUSD works with provides immense security of funds above what one single individual could ever achieve while providing legal protection from any loss of funds. One use case for such economies is where salaries are paid in TrueUSD, if adopted this has the potential to circumvent government issued funds altogether, allowing TUSD to become a prominent medium of exchange for countries in desperate need of currency stability.

Perhaps what is more foreseeable in the immediate future, however, is the role that TrueUSD could play in the tokenization of real-world assets. An increasingly growing market in desperate need of a reliable store of value, TrueUSD has the potential to become the medium of choice for those looking to tokenize real-world assets such as real estate, fine art, and commodities such as gold. With the infrastructure in place to provide a safe store of value with full collateral, regular third-party audits and legal compensation for bad actors, the potential for TrueUSD to capitalize on this market is certainly present. Alongside becoming the stablecoin of choice for cryptocurrency exchanges globally, the tokenization of real-world assets appears to be the next best application for TUSD. Ultimately, if TrueUSD can dominate this market before others then the success of their stablecoin could substantially surpass Tether’s current market capitalization, as $256 trillion dollar market awaits.

Catalysts

Tackling Tether: Up until recently the market dominance of Tether has truly outweighed all stablecoins that have chosen to challenge, as no fully encompassing solution could be found to tackle the broad inadequacies faced. TrueUSD is fully collateralized, consistently audited by trusted third parties and a legally backed stablecoin that directly tackles the untrustworthiness of the Tether project. As the market for stablecoins continues to fracture it will not be long before a new pegged currency becomes the stablecoin of choice in the market. TrueUSD appears to have placed itself at the forefront of this race.

Emerging Markets: During the cryptocurrency bull run of 2017, stablecoins were seen merely as a way for traders to hedge their portfolio to avoid any negative market downturns. As the market has developed, however, it has become clear that there are multiple other use cases for stablecoins. Perhaps the most poignant is the $256 trillion market for tokenization of real-world assets into digital assets. In order for this to occur on a mass scale a trusted stablecoin most be available for those seeking to place large amounts of value onto the blockchain. TrueUSD appears poised to appeal to this market if achieved TUSD will outpace the market capitalization of Tether in an instant.

Risk Factors

Market Saturation: As in any market, when an opportunity as large as the demise of the monopoly force comes into existence, many firms are willing to throw extortionate amounts of money at the issue to ensure that they become the next market leader. Such an opportunity is too big to miss and so many firms have now entered the market to become the stablecoin of choice in the industry. Thus far, TrueUSD is achieving well in third place at the time of writing by market capitalization against strong competition such as USDC (owned by Coinbase and Circle) and Tether. If TrueUSD wishes to become the stablecoin of choice moving forward then they will have to pick their market segment carefully to ensure they are best in class, the age of the all-encompassing stablecoin is over. For TrueUSD, tokenization of real-world assets alongside exchange integration appears to be their best bets.

Conclusion

The Tether scandal should leave individuals questioning how they wish to store their funds in times where speculation is unprofitable and stability is necessary. TrueUSD provides a fully collateralized, third-party audited and legally backed stablecoin that utilizes a distributed network of trusted escrow accounts to ensure user funds are safe at all times. Such advantages may be utilized by traders looking to hedge their portfolio, those wishing to tokenize their assets or individuals looking to escape corrupt regimes is up to the individual. Now that such secure alternatives are available perhaps it is time for market participants to consider their options in an increasingly saturated stablecoin market and only strive to use the best. At current, TrueUSD appears to be just that, the most trusted stablecoin available in the market.

Trade Futures Contracts using TrueUSD! Go Long or Short on various altcoins trading pairs with leverage.

Join Our Global Community 

Stay updated on the upcoming BBOD developments via our various social media channels:

Telegram: https://t.me/BBODCommunity

Twitter: https://twitter.com/BBODTrading

Facebook: https://www.facebook.com/BBODTrading

YouTube: https://www.youtube.com/c/BBODTV

Linkedin: https://www.linkedin.com/company/bbod


Disclaimer : BBOD Research is an independent cryptocurrency research-house. The company has not received any remuneration (cryptocurrency or otherwise) in preparing this analysis. This report has been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed as a recommendation to engage in investment transactions or be taken to suggest an investment strategy in respect of any financial instruments or the issuers thereof. This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research under the Market Abuse Regulation (EU) No 596/2014. Reports issued by Trade the Future Holding (“BBOD Research”) or its affiliates are not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services and are not recommendations to buy, sell, or hold an asset. The information contained in this report is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date and are subject to change without notice. BBOD Research will not be liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents. Trade the Future Holding and its affiliates hold positions in digital assets and may now or in the future hold a position in the subject of this research.

Weekly Crypto Recap [12/10/18 – 18/10/18]

Week in Brief

Tether (USDT), destabilises causing widespread panic on centralised exchanges as traders convert their USDT for Bitcoin.

The International Monetary Fund (IMF) proposes concerns regarding the rapid adoption of cryptocurrencies and how hacking events of centralised exchanges could threaten the international financial system.

Tim Berners Lee, the father of the World Wide Web introduces his new venture inrupt, which aims to decentralise the web, allowing users to possess control of their data as initially intended.

Total crypto market cap is up 7.25% w/w, with 80% of the top 100 coins by market cap trading up w/w. 30% of the top 100 are trading up in the last 24 hours, whilst BTC is down 0.1% and ETH is down 1.4%. BTC, ETH and XRP lead the market cap respectively.


Market Performance

Top Stories

A collapse in confidence of Tether leads Bitcoin prices to surge more than 20% in a matter of hours

On Monday morning GMT, Bitcoin soared in price from $6200 to $7500, before settling around the $6900 mark. Although this has allowed Bitcoin to break through the major declining price resistance formed over the past few months, whether this move is sustainable remains to be seen. The move comes after considerable controversy regarding Tether (USDT), a stable coin utilised by the majority of traders on centralised trading platforms. Despite its name, USDT has failed to remain tethered to USD, with considerable premiums being seen on notable exchanges who offer the cryptocurrency as their prominent tethered pair, such as Bitfinex, Binance, Kraken and OKEx. For example, USDT dropped up to 10% in value on some exchanges, trading at $0.9 on Kraken. Consequently, the sudden increase in the price of Bitcoin can almost certainly be attributed to traders moving funds from their devaluing ‘stable’ currency into Bitcoin itself. The irony in this move is unprecedented, with individuals usually relying on the stability of USDT in Bitcoin downturns. It appears for the time being Bitcoin has become a better store of value than USDT itself.

So what caused USDT to crash? The debate over USDT’s solvency is not new, many sceptics have questioned the reliability of the centralised stable coin, which is merely backed by the US dollar in a traditional bank account for some time. If the bank refuses withdrawals, a centralised exchange simply cannot allow their users to withdraw tethered funds themselves. As predicted, the solvency debate has now come to a head, with Bitfinex suspending withdrawals of USDT as a result of losing their banking partner Noble Bank, who supposedly backed USDT, alongside HSBC refusing to back USDT moving forward. Moreover, this has lead other centralised exchanges such as OKEx to suspend withdrawals causing further panic for market participants.

Bitfinex is now desperately trying to secure USD fiat pairs to reconcile themselves, but with such significant setbacks, it is hard to say whether USDT will ever be able to regain the credibility necessary to function as a tethered currency in the future. A push towards a decentralised stable coin, not backed by funds in a US bank account, such as MakerDAO’s DAI, could become a necessary scapegoat for those looking to find a stable hedge in market downturns in the future.

 

IMF issues warning regarding the rapid growth of cryptocurrencies and their impact on the global financial system

The latest International Monetary Fund (IMF) report, “Challenges to Steady Growth”, proposes that the rapid growth of the cryptocurrency marketplace over the past 2 years could pose a substantial threat to the international financial system as world banks struggle to keep pace. The report places a strong emphasis on how the increased adoption of cryptocurrencies could allow for large-scale hacking attacks on centralised platforms which do not have high enough security measures to prevent sophisticated hackers from infiltrating their wallets.

“Cybersecurity breaches and cyber attacks on critical financial infrastructure represent an additional source of risk because they could undermine cross-border payment systems and disrupt the flow of goods and services. The continued rapid growth of crypto assets could create new vulnerabilities in the international financial system” a comment from the recent IMF report

Thus, the IMF claims that the continuing adoption of cryptocurrencies by both retail investors and institutions could create significant vulnerabilities in the traditional financial system, as both parties begin to perceive cryptocurrencies as alternative means of value and begin utilising them for speculative or business purposes. Ultimately, the IMF suggests that if large institutions are to adopt cryptocurrencies, for instance, Ripple (XRP) for industries such as remittances, then the security of storage must be industry grade and backed by insurance mechanisms to ensure the safety of funds. Failing this, both industry players and individuals could suffer large-scale loses causing financial chaos.

Despite this, some bullish cryptocurrency advocates such as Emin Gun Sirer, a well-regarded professor at Cornell University, stated that any recognition from the IMF that cryptocurrencies are becoming a notable asset class is optimistic for the industry as a whole. Moreover, decentralised exchanges are now allowing decentralised custodial services to their clients, which are finally allowing individuals to utilise the power of the underlying blockchain technology to keep their funds secure outside of centralised wallets.

 

Tim Berners-Lee aims to decentralise the Web with new cryptocurrency venture

“I’ve always believed the web is for everyone,” Wrote Tim Berners-Lee, the iconic British engineer and professor of computer science who notoriously gave away the World Wide Web for free some 30 years ago. “The web has evolved into an engine of inequity and division; swayed by powerful forces who use it for their own agendas,” Berners-Lee added in a recent blog post.

We are at a critical tipping point for the internet, where privacy scandals are awash in the worldwide media and at the forefront of consumers minds. Individuals are rapidly losing trust in centralised authorities in our digital age – and they are demanding solutions. This was sparked by the infamous Cambridge Analytica scandal followed by the recent Facebook confession that they were using metadata to target specific voters for Trump’s political campaign. As such, individuals are no longer in the dark concerning how their personal information is being exploited for commercial or political gains.

As a result, in late September the father of the internet announced a new project coined inrupt, a project with a mission to decentralise the Web. Backed by Glasswing Ventures, the inrupt ultimately aims to restore power to individuals rather than the commercial bad actors who actively seek to capitalise on user data. Thus, inrupt’s true goal is complete decentralisation of the web placing privacy at the forefront, allowing the user, and only the user, to own the rights to their personal information. Now the race to secure user privacy has officially begun, inrupt’s visionary leader may just place them at the forefront of this process.  

 

Meanwhile

Coinbase adds 0x (ZRX), the first ERC-20 token to be added to their product offering for customers worldwide (Bitcoin Magazine).

A user of the Bitcoin distributed network confirmed to have transferred $194 million USD valued in Bitcoin for a transaction fee of 10 cents, a feat unimaginable in traditional markets (CCN).

Former Vice President of Coinbase has transitioned to a position at Bakkt, the notorious NYSE backed firm who will allow institutional investors access to the cryptocurrency world by legal means starting November (CryptoGlobe)

Despite the clear institutional interest in the cryptocurrency market, Barclays shuts down their trading division just months after its inception (CryptoSlate)

Choi Jong-Koo of Korea’s Financial Services Commission has reestablished his belief that ICO’s should not be able to operate within the country, whilst still undeniably showing support for blockchain for business sake (Cointelegraph)

 

What We’re Reading

The International Monetary Funds “Challenges to Steady Growth” Report

An interview with David Chaum, a cryptography pioneer who believes blockchain cannot reach its full potential until it becomes a successful medium of exchange

Tim Berners-Lee “One Small Step For The Web”

21 Cryptos Magazine, October Edition: The Next Bull

 

What We’re Listening To

Tether Fears! Node Investors take on the collapse of USDT of its effect on the market

Bad Podcast: Why Stablecoins Matter

The Oslo Freedom Forum in New York: Why Decentralization Matters

What Bitcoin Did: An Interview With Jimmy Song

Revolutionizing Democracy Using DAOs