A blockchain application of the Future: Asset-backed tokens

The rapid changes taking place in the FinTech framework are making investors around the world both excited and wary. There are new buzzwords...

The rapid changes taking place in the FinTech framework are making investors around the world both excited and wary. There are new buzzwords popping up every other day and investors are trying to keep up with all the changes and developments to the best of their abilities.

Why are asset-backed tokens applications of the future?

While the world is going “gaga” over the emergence of cryptocurrencies (at last count there were 1567 cryptocurrencies on Coinmarketcap.com), many traditional economists are failing to see any real value in them, except that speculators and traders have a field day when prices fluctuate and money changes hands. For an alternative currency to hold real economic value, it has to be used in daily transactions, both B2C as well as B2B.
 
Also, there is a high demand for investments in crypto assets on the markets with likeliness of further increases. Since FinTech is a new sector in finance without any institutions yet, financial service providers have not been able to meet demands for Bitcoin and/or blockchain investments. Investors have been left waiting and wanting. Pecunio, an investment platform for blockchain asset management, fills that gap and provides not only professional advice, but adequate solutions as well.

Pecunio’s Gold Coin

Pecunio’s Gold Coin, for example, is just one possible way of safely transacting value on the blockchain without inflicting major loses due to volatility. The idea is to create a cryptocurrency not only backed by gold, but also exchangeable into physical gold. It would therefore be:


  • A payment solution for goods and services (gold-backed cryptocurrency)
  • Act as a gold-tether in times of market turmoil
  • while being the safest and most transparent way of transacting gold

Ned Naylor-Leyland, Manager of Old Mutual Gold & Silver, stated following in a report following a Bloomberg article:

“Bitcoin was explicitly designed to be digital gold. […] It’s about bringing the ownership of disciplined money into the modern world. Bitcoin is paving the way for the reintroduction of gold as global money.”
An asset-backed token like Pecunio’s will provide the much-needed stability to the crypto markets, something that had been dearly missing since the last few years. It is obvious that with stability, crypto assets will attract a far greater number of investors.

Drawbacks of cryptocurrencies in large-scale transactions

So why can’t Bitcoin be used for large B2B transactions? The answer is pretty simple. With the kind of price fluctuation that a currency like Bitcoin experiences on a daily basis, it would make large transactions fraught with the danger of value fluctuations that may put either the payee or payer at grave financial risk. Say for example, the cost of a B2B transaction is $1 Mn and the payer pays this amount in Bitcoins the rate of which at that moment is $8500. In that case, the payer will have to transfer 117.647 Bitcoins in the payee’s account. This transaction takes time, also called one “block time.” And if going by the volatility of Bitcoin, the price falls to, say, $8000 when the transaction is verified and complete, the payee stands to lose close to $60,000. In such a scenario, it is not worthwhile to use a highly volatile unit of value exchange as Bitcoin.

The established currencies, called fiat currencies, are driven by complex economic drivers like economic growth, inflation, and interest rates. Cryptocurrencies, on the other hand, are driven by the notion that in the near future, they might replace conventional currencies and that buying them now could help create wealth. This is a negative scenario for cryptocurrencies, an asset that holds immense promise. But all this promise can mean naught if it is not channelized for the greater good.

Stabilizing cryptocurrencies

One way to create a #stablecoin — one whose value will not fluctuate as much by market forces — is to tie its value to a real, tangible asset. This could be a precious metal, oil or real estate or, in some cases, the United States Dollar. This will have multiple positives — it will attract skeptical investors and also help such coins to be used in large-scale and daily transactions.

Because asset-backed tokens have a fixed amount of asset backing it, you cannot have a large number of them in circulation. So to create an asset-backed token, its value needs to be tied to something that is abundantly available, comparatively. For example, a gold-backed token will fare much better than a real-estate backed or diamond-backed token. And because we already have many of the above-mentioned assets represented well in the stock exchange (oil bonds, silver stocks and real estate stocks), tokenizing assets isn’t too difficult.

Pecunio will be the first company to exchange physical gold via the blockchain worldwide. Every Pecunio Gold Coin represents exactly 1 gram of segregated, unallocated 999.9 fine gold from LBMA-approved refineries.

It’s flagship product, the Pecunio Gold Coin, is a gold-backed token, running on the Ethereum blockchain called Pecunio Gold Coin.

In conclusion

Investors like Warren Buffet have already termed cryptocurrencies as a “bubble” due to their immense volatility. But introduction of a stablecoin, or an asset-backed token, will attract a new class of investors, people who were apprehensive to put their feet in the alleged murky waters of crypto volatility.

Asset-backed tokens will also slowly replace traditional fiat currency as a medium of exchange due to its dependence on the immutable blockchain technology that makes transactions fast and secure. With technological advancements, asset-backed tokens can certainly become the preferred medium of exchange for the future.

Source: Medium

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