Stablecoins are all the rage, but creating a cryptocurrency free of volatility, and thus useful for transactions, is a real challenge.
Alchemy, it turns out, was the easy part.
Crypto usually trades somewhat like equity, and that is both a plus and a problem. The coins are attractive for the potential capital gains but not so great for exchange: the price of goods being bought will fluctuate by the minute in unit terms as the rate varies. And while the ups and downs may diminish over time, it is possible that crypto will always remain more an investment than an instrument of commerce and long-term savings.
Ways to Stabilize
Many attempts have been made to contain volatility, some going back years; most have opted to link their coin to a relatively solid asset. Tether is dollar backed; Saga will be underpinned by a basket of currencies; SwissRealCoin is built atop a property portfolio. Another option is to stabilize the coin with a coin. Dai, for example, uses Ethereum to defend a peg.
It may also be possible to act as a virtual central bank, buying and selling coins depending on supply and demand in order to maintain a predetermined level. The surplus that results is used to guarantee that the currency holds. Basecoin and Seniorage Shares are two such schemes.
Not Working as Planned
Some critics argue that no single solution actually exists, that all methods of pegging have their flaws and that all pure plays are ultimately doomed. A dollar-backed system is highly centralized and requires on-hand and verified cash. It is also a proxy for fiat anyhow, and that fact could limit demand from crypto purists.
Tether, which is by far the largest in the class (with $2.5bn worth of coin in circulation), is already under pressure because of the cancellation of a key audit. On the other hand, TrueUSD, a dollar-linked stablecoin, experienced a price spike in May 2018 on rumors of a listing. The instability shook confidence in a coin that was supposed to be boring and brought in an unwelcome speculative element.
Crypto-backed units look great on paper but can fall short of expectations over time. They can be expensive because of the need to reserve large quantities of coin to be unleashed against inevitable drops in value.
A currency backed by nothing but smart contracts depends on faith that it will actually work in practice and generate a surplus of seigniorage over time. Doubts about the long-term prospects of such an arrangement persist. Burning through the surplus is a real possibility, and not everyone is convinced that utilizing future seigniorage, the plan if the surplus is run down to zero, will work.
The stable coin world is stuck fixing one flaw only to find others cropping up elsewhere.
The Right Mix
The Kinesis Monetary System works to build solutions to all these problems into the architecture. The minds behind it seemed to have gone down the list of what could go wrong and hardwired solutions to each into the coin.
The Australian-backed, Isle of Man-incorporated company is guaranteed by gold; it does not depend upon national currencies. It is backed 1-to-1 with bullion purchased at the time of crypto mining. The coin owner actually has title to the underlying. This greatly contrasts the workings of a bank, where deposits are technically assets of the institution.
The gold is not just any old gold. Kinesis utilizes the Allocated Bullion Exchange‘s (ABX) Quality Assurance Framework, which involves segregated contracts, serial numbers and bar hallmarks. ABX was founded in 2016 as the world’s first electronic exchange for physical metals.
Kinesis avoids the inefficiencies and uncertainties of the traditional bullion market, an over-the-counter, decidedly legacy affair. It will have an international best-practices back end, which will add to the security of and ultimately confidence in the coin is created.
A Step Ahead
Kinesis goes a few steps beyond the strong foundation. The system is designed to actually work in addition to being safe. It is more than just metal in a vault.
The strategy to achieve usability, use an active exchange is multi-pronged. To attract holdings, Kinesis will offer a return. To prevent hoarding, it will reward money velocity. In addition to the minter yield and the holder yield, a recruiter and a depositor yield will also be paid out to encourage initial participation. The lifecycle and value chain are incentivized.
Kinesis is working to establish a fully-operational, holistic monetary system, one that takes the stability of the traditional models and marries them with the strengths and efficiency of crypto components. It is an evolution of what exists rather than a blind leap forward.
It is being built with Gresham’s Law in mind, a healthy suspicion of fiat currency and an understanding of the benefits of new technologies.
Many Moving Parts
The system is arguably complex. A schematic of its workings is a challenge to follow even for the initiated. But there is a method to the madness. The complexity is not a weakness but the source of strength.
The workings include the Kinesis Currency Exchange (KCX), where the coins are produced, the Kinesis Blockchain Network (KBN), where the coins are utilized, the Kinesis Blockchain Exchange (KBE), where cryptocurrencies are traded, the Kinesis Digital Bank (KDB), where the Kinesis are held, and the Kinesis Commercial Centre (KCC), where companies can offer good and services.
The system will be integrated with the rest of the world via most conventional channels, including credit and debit cards on the Visa and MasterCard networks, payroll deductions, PayPal, Western Union, MoneyGram, ACH, telegraphic transfers and ATM networks.
The users can choose almost any form of exchange, including gold and silver (physical and segregated) as well as a number of major currencies–including the yen, euro, dollar, the British pound and the Swiss franc.
Standing Out and Breaking Away
The crypto market in total has an estimated 1300 coins. About 30 gold-based coins are in circulations, and many more are on the way. This includes coins from the UK’s Royal Mint and Australia’s Perth Mint, Singapore’s Golden Currency, Russia’s Gold Vein Token and Gold Mine Coin, Switzerland’s Aug and Darico and UK’s Flashmoni and Gold Bits Coin. It’s a crowded space. Competition is significant.
If done right, Kinesis will achieve what’s so far been elusive and offer a coin that is actually a useful and lasting currency.