Some thoughts - tokens & asset backed crypto

-
As much as I espouse cryptocurrency and the future that it holds, I love to read up counter theories on it to get a more balanced view.

I want to deepen my understanding on how things work or could work out, and the risks when things don't work out the way we thought they would. Not a bleeding heart here and also no interest in putting up sexy posts on how much money I have made in crypto, I am not a numbers showy blogger. Just wanna share some articles I have came across and points to highlight. 

Read also my previous post on Making sense of DeFi

Crypto tokens


With tokenized assets on the rise, we are seeing more and more platforms / institutions capitalizing on them (legit or not I don't know, DYDD). Yes there are tokens for all sorts of things from tweets, collectibles, gold, to even Astrea bonds! Mind you that tokens are not equal to cryptocurrencies, although you can swap cryptocurrencies for tokens. 

NFTs are a subset of crypto tokens. You can read about tokenization here. Tokens are units of value that blockchain-based organizations or projects develop on top of existing blockchain networks. While they often share deep compatibility with the cryptocurrencies of that network, they are a wholly different digital asset class and are NOT cryptocurrencies. [Reference: Cryptopedia]

Example: Tokens built on the Ethereum platform are known as ERC-20 tokens.

Token value are subjected to the utility roadmap drawn by their respective project makers, such as the tokenomic and maximum supply. You can find them usually in whitepapers of the projects.


There are no-doubt much benefits for use of tokens in terms of liquidity and accessibility, however, bear in mind the risks such as security and regulations, also who would hold accountable custody to those tokenized physical assets.

Stablecoins - asset backed and algorithmic


Asset-backed stablecoins can be either dollar-backed or gold-backed. As the name "stablecoin" suggests, stablecoins are supposed to have relatively stable pricing as their prices are pegged to the underlying assets. They reside on blockchains and can be likened to fiat currencies for the purpose of deposit or swapping for other cryptos. I think that with an increase in the adoption of dollar-backed stablecoins, it would help to keep up the demand for USD. We need fiat USD to buy stablecoins like GUSD, USDC and USDT afterall from exchanges. [Read also: Understanding counter-party risk]


By the way, digital yuan is coming. They can't let USD have all the limelights right? (With crypto vortex kept sucking in the currencies...)



Algorithmic stablecoins do not have real assets backing their values, instead its price-peg mechanism is determined by an algorithm or the protocol's smart contract. 

The smart contract rules will ensure an increase in supply of the stablecoin in an event of deflationary tendency or a reduction in supply in event of inflationary tendency. You can read more in this external article. Examples are FRAX and UST.

Woke reads

(data is outdated, just read conceptually)

"To be clear, this is only an analysis of quantitative performance; to accurately judge the best stablecoin, there are many qualitative factors to evaluate as well. For fiat-backed coins you need to judge the counterparty/credit risk of the issuer and the credibility of their financial audits. It’s also worth nothing that the regulated stablecoins (PAX, USDC, TUSD and GUSD) all appear to have backdoors for law enforcement to access and freeze tokens, which were required by financial regulators and were fully disclosed by the project teams.

As far as crypto-collateralized coins, there is always some level of risk of smart contracts being hacked or code otherwise malfunctioning. There is also the possibility that if cryptoasset prices fall too much too fast, even an over-collateralized stablecoin could break its peg."


--
The multi-billion dollar question... will there be a crypto BIG SHORT some day?

"It’s hard for crypto exchanges to get banked, but Coinbase, Bitstamp, and several other high-quality exchanges manage it by maintaining strong know-your-customer (KYC) and anti-money-laundering (AML) controls internally."


"Bitcoin was clearly correlated with Tether; Tether was clearly being issued at a frantic rate; and that issuance had a high probability of being backed by nothing at all."

I think it's still in the midst of showing clarity to that. It has been a white elephant that almost every was adorning (look at its cap) and no one seemed cautious about its shit since 2017 till lately.

As for bitcoin, we now know that it is... well... not exactly correlated with Tether (given the difference in their market caps), but with so much more of others.


"Bob: You send your USD to Coinbase and buy Bitcoin with it. Then you move your Bitcoin onto Bybit and trade with it there.

Me: Hang on. If that’s the case, then why would anybody ever use an unbanked offshore exchange that trades purely in crypto? What does Bybit offer you that Coinbase doesn’t?

Bob: Leverage. I personally only use 2–3X leverage, but they let you leverage your positions up to 100X if you want. You can’t do that on Coinbase."

--





What are you thoughts? Feel free to comment below.

Like what you read? Follow me on Facebook or Twitter for updates and news that I dig.

Check out my referrals for fantastic sign up bonuses on SAXO, Moomoo, Gemini, Celsius, Blockfi and more.

🤗
Thanks for reading!

Disclaimer: Contents of this blog are personal opinions and NOT financial advice to buy or sell any mentioned securities, commodities or assets.

Comments

Post a Comment

Popular posts from this blog

Reflections for year 2024

-
Image
2024 has been a relatively peaceful year. So peaceful that I have read countless novels and other books, met my sports buddies almost every weekend and picked up horticulture. Physical and mental health As we say, health is wealth. I have stuck fairly consistently with my exercise regime and tried to include more fruits and vegetables in my meals (although I eat out more and cook less these days). My weight, BP and cholesterol levels are doing ok. For those 40 years and above, remember to get your  subsidized health screenings from the government . Working less and meeting up with friends more contributed to an improved mental health. I see that the government has stepped up on initiatives in the community but work place initiatives from employers still seemed lackluster, especially for those who can't WFH and need to commit 44 hours or more a week at frontline work. I have also started a Gratitude journey to celebrate all my little life milestones. Financials Investment wise ...
Read more

The gold rush again

-
Image
I recently saw this video on CNA Money Mind channel https://www.channelnewsasia.com/watch/money-mind-2024-2025/going-gold-4299741 and thought I would summarize some learning points for those interested in gold investment. Photo by Zlaťáky.cz on Unsplash Gold is viewed as a safe haven asset in time of uncertainty, crisis or geopolitical risks. Demand for gold is influenced by Central bank purchases. The purchase premium of gold decreases in % with relationship to the gold bar's weight. Eg, a heavier gold bar has lower purchase premium over a lighter one. There's no GST for investment grade gold bars. Gold-backed ETF is backed by physical gold. Lower yield environment will benefit gold prices as the opportunity cost of holding gold lowers. Source: https://www.statista.com/statistics/673513/monthly-prices-for-gold-worldwide/ As seen from the chart, the last mega price spike was in year 2019 to 2020. This year we saw another mega spike. In order to circumvent any US withholding t...
Read more

Shit happens and I lost my low-hanging fruits

-
My SAYE account has just hit its 25th month anniversary which is also the "month of maturity". Anticipating to get the 3.5% bonus interest for all these months of saving, I was shocked to see only $17+ cash gift credited as opposed to a few hundred dollars. I was about to send a message to query the bank what caused this interest plummet versus what I got in the 13th month when I came across a debit transaction in my account history (GASP!). To my oblivion and horror, I have accidentally selected my SAYE account to transfer $50 to a joint account to foot some bill in one of the months last year. Here's the terms and conditions for those who are not familiar with the SAYE account of POSB. "To receive the additional 3.5% p.a. Cash Gift Interest, ensure that you do not make any withdrawal from your POSB SAYE account." "If a withdrawal is made in the month, this will result in the previously accumulated additional 3.5% p.a. interest to be forfeited." Damn....
Read more

Reflections for year 2023

-
Image
2023 is a year which I have relented to the inevitable dealing with adversities. Sending my mother in and out of hospital had become a norm. Being a healthcare professional, I thought I could handle it single-handedly well enough, not until the point when my mother ceased to be fit enough to attend dementia day care that I came to the conclusion that I needed a helper. However, things took a steep downhill turn before I could hired one (counted myself lucky that I did not commit to a hire). My mother passed away in June, it was a relief for me and probably a relief for her as well. However, life is not meant to be smooth-riding. My mother did not leave behind a will, thus I have to apply for the Letters of Administration with the Court and as my sibling has mental disability, this led to some complexities which have yet to be resolved. Instead of hiring a lawyer, I decided to apply the LOA and MCA orders by myself through the Service Bureau. I am paying my time and convenience for it ...
Read more

Be anti-fragile

-
Image
Life's not easy, life goes on. Rather than gripe (we know the saying "人生不如意事十之八九"), it is important for us to focus on risk management in our daily lives and how to become anti-fragile. Buying insurance, setting stop-losses, cut losses and bad connections out of our lives, look before stepping and don't seek cheap thrills. That's risk management at its very least. Taleb's concept of anti-fragile is one level above risk management and robustness.  It is about how chaos can make one better and stronger. Don't fear volatility, uncertainty and disruptions. Instead view them as opportunities.  Quoting the video, we should learn to  "transforms fear into prudence, pain into information, mistakes into initiation and desires into undertaking" . Toughen your mindset If you have tough desire, then be prepared for a tough process working towards it. Another point highlighted in the video for our mind training is - we can imagine worse case scenario, imagine...
Read more

Disclaimer:

The contents of this blog are author's personal opinions and do not constitute advice to hold, buy or sell any securities, commodities or assets mentioned. I do not guarantee the accuracy and reliability of any information provided, and shall not be liable for any losses incurred from reading my posts or using the materials herein. This blog may contain affiliate links to external sites.