One of the most sought-after outcomes for Bitcoin and other cryptocurrencies is the possibility of replacing fiat currencies and being used globally for day-to-day transactions and international transfers. While some say this will never happen, others believe it to be inevitable. While we don’t yet know which is true, one thing is certain: If a shift from fiat to crypto does happen, it will likely take years, if not decades, for it to happen.
Although cryptocurrency users can easily transfer funds to each other, they are still dependant on fiat currencies when purchasing day-to-day items given that very few places accept cryptocurrencies. So, in the short term, if fiat is hard to replace, why not try to improve it rather than outright replace it?
Part of the crypto world has become accustomed to the idea of growing alongside the legacy financial system, a strategy that may see blockchain technology integrated with the current financial paradigm in a cooperative manner, rather than overthrowing it. With this in mind, many projects in crypto have set out to create products designed with the existence of fiat currencies in mind. This is the case with stablecoins.
What is a Stable Coin?
Roughly speaking, a stablecoin is a blockchain-based cryptocurrency whose value is pegged to that of a more stable asset such as gold, oil, or fiat currencies. As such, stablecoins retain the same value as their underlying asset, mitigating the high volatilitycurrently present in the cryptocurrency market.
Tether or USDT is a popular example of a stablecoin in which a reserve of USD equal to the sum of issued tokens gets deposited into an audited bank account - Read our guide about Tether/USDT. On the Tether platform, users were allowed to deposit and withdraw real USD and, consequently, the number of tokens grew and shrunk according to the number of USD present in the bank account.
While USDT was used as a trusted stablecoin for a long time, recent rumours surrounding the legitimacy of the project and allegations of “fractional reserve banking” has led a large number of users to distrust the project. Moreover, lack of liquidity(ability to deposit or withdraw real USD) has led to multiple discrepancies in the USDT/USD markets provided by exchanges like Kraken and others.
Both the lack of trust and lack of liquidity have proven obstacles when trying to achieve the ideal model for a stablecoin.
TrueUSD, a new project that has built and launched a stablecoin, proposes a different strategy to deal with both of these issues and, while the project is young, TrueUSD appears to strive towards a higher standard as its name alludes to.
What is TrueUSD and how does it work?
TrueUSD, part of the TrustToken asset tokenization platform, is a blockchain-based stablecoin that, although similar to USDT, seems to be a direct response to the problems observed in Tether throughout recent times. The official TrueUSD website itself states:
“We wanted a simple stablecoin, without the need to trust [a] company’s hidden bank account or special algorithm.”
In the TrueUSD system, U.S Dollars are held in the bank accounts of multiple trust companies that have signed escrow agreements, rather than in a bank account controlled by a single company. According to TrueUSD, the contents of said bank accounts are published every day and are subject to monthly audits. This method of storing USD ensures that the user can have greater trust in TrueUSD as the collateralized holdings are not centralized in any one entity, but instead distributed throughout many fiduciary partners.
In terms of the technology, TrueUSD implements a framework that ensures they are not in charge when issuing tokens. While the USDT tokens are issued on the Bitcoin blockchain through the Omni Protocol, TrueUSD (TUSD) tokens are based on the Ethereum blockchain, allowing for a more advanced issuance mechanism.
If someone wants to obtain TrueUSD through the online application, they will need to pass a KYC/AML check. Once that’s complete, they can send USD to one of TrueUSD’s trust company partners. Once the funds are verified by the trust company, their API will instruct the TrueUSD smart contract to issue tokens on a 1 to 1 ratio and to send them to the Ethereum address associated with the account at hand.
Once in the wallet, the tokens can be transferred to a friend or used as payment, combining the advantages of fiat (stability and trust) with those of cryptocurrencies (reduced fees and transfer times). The user can also redeem real US Dollars by sending the TUSD tokens back to the smart contract address, which will notify the trust company, and initiate a bank transfer to the user’s account.
The system above verifies that the issuance happens in a decentralized environment that utilizes multiple APIs, which ensures the handling of the underlying fiat currency is superior to previous alternatives.
How to use TrueUSD (TUSD)
TrueUSD has been created with a few use cases in mind including simple financial services, trading, and online commerce. Although a very diverse infrastructure can be built around the TUSD token and other upcoming TrueCoins, the potentially strongest use case is as a replacement or alternative to USD on cryptocurrency exchanges.
Bittrex, for example, has already created a USDT/TUSD market, allowing their users to exchange Tether for TrueUSD. While TrueUSD can be acquired on Bittrex, the TrustToken platform itself is still in development.
You can apply for access to purchase and redeem TrueUSD here.