TrueUSD, a cryptocurrency whose value is pegged to that of the dollar, has signed a deal with Binance, one of the world’s largest cryptocurrency exchanges in terms of volume.
Starting May 18, TrueUSD (ticker: TUSD) will be listed on Binance, allowing traders to exchange it for Ethereum, Bitcoin, or Binance Coin.
Launched in March by San Francisco-based startup TrustToken, TrueUSD is a so-called stablecoin — a cryptocurrency whose value is pegged to the value of a traditional asset, in this case the U.S. dollar. TrustToken claims that TrueUSD is fully collateralized with fiat money, held in escrow accounts accessible by trusted third-party fiduciary partners. The company says it’ll publish monthly reports on the state of its bank account holdings, and will subject them to ongoing audits.
“Having U.S. dollars as collateralization held in escrow in addition to our regular accounting reports provides traders with reassurance that they can trust in TrueUSD,” Rafael Cosman, co-founder and CTO of TrustToken, said in a statement.
In other words, every single TUSD should always be redeemable for U.S. dollars, at a 1:1 ratio, with a pretty good degree of certainty that the issuer actually has the dollars to back them up.
While the idea of a cryptocurrency based on an actually currency sounds ironic — the whole point of crypto was to develop an alternative to real-world, centralized financial systems — the development is important for the space. Stablecoins provide traders and investors with a certain degree of stability in the volatile world of cryptocurrencies, without the need to sell cryptocoins for straight-up cash, an action that often has tax consequences.
“Having U.S. dollars as collateralization held in escrow in addition to our regular accounting reports provides traders with reassurance that they can trust in TrueUSD.”
So far, the dominant stablecoin has been Tether (ticker: USDT), which is connected to cryptocurrency exchange Bitfinex. If you ask Tether, the company, USDT is fully backed by fiat currency assets in the company’s reserve account. But there’s a problem with that claim: There are $2.2 billion USDTs in circulation (according to CoinMarketCap), and the company has never been publicly audited. This, in turn, has led to speculation that USDT is not adequately collateralized, and that Tether is printing new USDTs out of nothing.
The notion that Tether might collapse and cause a big disruption in the cryptocurrency market is known in the space as “Tether FUD” (with FUD standing for “Fear, Uncertainty, Doubt).
Now, however, traders on Binance — which is currently the second-largest cryptocurrency exchange (behind OKEx), with $1.8 billion in trading volume in the last 24 hours — have a choice to park their assets into TUSD instead of USDT. This should ease the fear of a possible Tether collapse as well as give traders the option to hedge their bets and diversify across two USD-pegged coins.
TrueUSD is already available on cryptocurrency exchange Bittrex, where it launched in March. But Binance is approximately seven times bigger than Bittrex in terms of trading volume, and it’s the second largest Tether market, making this new partnership far more important.
There are currently roughly 12 million of TUSDs circulating, representing an equal amount of collateralized dollars. The demand on Binance will likely be far bigger than that, but Cosman says this won’t be a problem.
“Right now, there are numerous external parties depositing additional funds into the TrueUSD escrow account to purchase tokens and trade them on the exchanges. The market cap of TrueUSD can grow by millions or tens of millions per day; as soon as the US dollars arrive in the escrow account to collateralize new tokens, we mint those tokens and issue them,” he told Mashable.
TrueUSD and Tether aren’t the only stablecoins around, but they’re the biggest ones that took the simple but capital-intensive route of backing the entire token supply with actual fiat reserves. Alternatives such as MakerDAO’s Dai or Havven’s nomin rely on reserves in cryptocurrencies such as ether as well as complex algorithms that keep the price in place. These alternatives are far more decentralized than a solution such as TrueUSD, but they aren’t available on the largest exchanges yet.
There are, however, some powerful competitors on the horizon; just days ago, Circle raised $110 million to launch a stablecoin pegged to the value of U.S. dollar.
Disclosure: The author of this text owns, or has recently owned, a number of cryptocurrencies, including BTC, ETH, MKR, DAI, HAV. The author of this text does not own, or has recently owned, TUSD or USDT.