Today we decided to compare the stablecoin of CDiamondCoin with other stablecoins that are pegged to the US dollar.
Now there are several stablecoins on the market, which are secured by the dollar, and they track its exchange rate. The most popular are:
We have already made this comparison, however, it was only one part of a global article and didn`t reveal all the subtleties.
The object of security
We would like to start with the object of security – dollars and diamonds. Dollar currency has a number of significant drawbacks that diamonds don`t. The first one is inflation. The annual inflation of the dollar in recent years is about 2%, which is not much. However, it is still there. If you buy dollars for saving capital and don`t touch them for 5 years, then after this time you will find that their purchasing power has decreased by more than 10%, although the nominal amount has not changed. Diamonds don`t have this flaw. Their price is growing steadily over a long distance. Although this is a fairly modest growth, especially when compared with traditional markets, not to mention cryptocurrency, the company’s task is to create a stable instrument. But this insignificant growth is just enough to cover inflation and even give some minimal income.
For example, we propose to consider the change in the cost of a 1 carat round diamond (as an average option). At a distance of 50 years (from 1960 to 2010), this stone showed a return of 751%. During the same time, the dollar depreciated 7.13 times. So, what do we get? If we held $ 100 in diamonds in 1960, then our capital would have been valued at $ 751 in 2010. However, during this time, the dollar depreciated 7.13 times, that is, the actual purchasing power of our money is $ 105.3, which is $ 5.3 more than in 1960. Thus, we conclude that over a long distance, diamonds grow just at the level of inflation or even a little more. Moreover, if we had not bought the gem, the purchasing power of our $ 100 in 2010 would have turned into $ 14. Based on this information, there is the question we should be asking: «What would you like to keep your money in? An inflation-protected asset or a dollar currency?».
We also suggest considering a period of 10 years – from 2000 to 2010. During this time, the diamond under consideration increased by 50.66%, while the dollar depreciated in the meantime by 21.43%. We make the same simple calculations and get that, having bought a diamond for $ 100 in 2000, our capital would now be $ 150. However, the depreciation of the dollar makes this amount the same as in 2000 $ 119.5. Thus, the yield for 10 years is almost 2% per annum. If we kept the money in dollars, then their purchasing power for 2010 was a little less than $ 80.
Many may say: «Diamonds have too low yields, and they have been practically absent for almost 50 years. Why do I need them if I can buy S& P500, gold or any other more profitable asset?» Very often, competent investors don`t pursue high returns, but first of all, preservation of capital with minimal risks. If an investor decided to buy gold just before the crisis of 2008, its capital would depreciate by 30%. But if you decided to save money in the S&P 500? Then -50% savings would come out. Having bought gold in August 2011, the investor would still be at a loss. But it is not known how long it will take for the industry quotes to peak values. Diamonds often don`t fall by more than 15%, and many copies even grow during a crisis. Therefore, the answer lies on the surface – risks. The higher the return on the asset, the higher the risk. If you are willing to sit out a drawdown of several tens of percent for two or more years for profit, then you really should consider the stock market or any other. However, if you want to preserve capital by protecting it from inflation, then diamonds are the best solution. But tokenized diamonds are the most convenient solution.
Will the dollar still live 15+ years in a leading position?
Secondly, the dollar itself as an asset has recently begun to lose that strong foundation on which it stood some 10-20 years ago. Yes, talking about the collapse of the dollar as the only reserve currency in the world has been going on for quite some time, but this is not unreasonable. The status of the reserve currency depends on a number of fundamental factors with which other states may not agree. For example, China in terms of GDP is already stepping on the heels of the United States and trade wars only confirm the fact that this country can already compete with the States in matters of influence. In addition, some members of the United States Congress note that the rapid spread of cryptocurrencies and in particular, stablecoins can shake the power of the dollar, as well as the entire banking system, because they are much more convenient and easier to use.
We don`t claim that the dollar will necessarily disappear. Just over time, its influence and foundation will only weaken.
USDT has been a leader among stablecoins for about 5 years. It is the most popular, and according to the latest data, it has shifted to third place in terms of the number of transactions. In other words, it is a practically full dollar, only tokenized. It is most often used to access fiat or to transfer funds. If earlier sellers accepted Bitcoin, Ethereum or XRP, and then converted them to USDT, now they are working directly with this stablecoin. However, the company Tether, which is the issuer of the instrument, has never once proved the fact of the availability of 100% real-time security of tokens in US dollars. There were several audits, but they were all carried out «retroactively», that is, at some past date. For several years, there has been talk on this topic, and recently it said at all that she is not required to provide its tool 100%. How then is this tool different from fiat currency? In fact, these are the same fiat unsecured candy wrappers, only in digital form. But if at one moment a large number of investors wants to leave USDT, the company will not have enough liquidity. How then is this tool different from banks that have repeatedly been the cause of global crises? Take at least the 2008 mortgage crisis. Banks are at least regulated by government agencies, and Tether can print USDT as much as necessary without providing them with anything.
In the case of CDC, the situation is different. It’s impossible to not provide the token with diamonds 100% due to the transparent blockchain technology and the uniqueness of precious stones. Each diamond has its own unique identification code. All diamonds that are subject to CDC capitalization will be on the platform. Approximately 95% of the diamonds will be investment, their price starts at $ 5,000 and much higher, and 5% will be 0.05 carats, currently worth $ 45. Each investor at any time will be able to exchange their stablecoins for diamonds, and then check the unique identification code. Thus, even if 100% of investors want to exchange tokens for diamonds at one point, they can do it.
We should say that issuers of other stablecoins have repeatedly proved 100% coverage of their instrument, therefore, at the moment, there are no questions to them. But, firstly, it is not known what happens to the subject of the objects of security between audits. Audit can be done once every six months, and within this range to perform various manipulations. Then bring the accounts back to normal on the day of the audit. But, what this period of time did with your money is unknown. Maybe they pumped bitcoin, played in a casino, played on the stock exchange or some other risky operations. Some of you may object and say: «But what difference does it make to them what happens to them in between audits, in total money is returned in full». Yes, they can always return or return for some time, they can only use them several times for manipulation. But they can also «burn out» at some point. The company doesn`t have enough financial reserves and you will suffer losses. However, this information will only pop up during the next audit. Secondly, they can also fake audit results. We don`t claim that they are doing it now, but it is possible. You might think that auditors who value their reputation will not allow such a development, but remember, what caused the crisis in 2007-2008? Auditors are also partly to blame, because unreliable securities were assigned the highest AAA rating for fear of losing profits.
We would also like to note something about price formation. Tokenized dollars still jump in price, their volatility reaches 10% both down and up.
The price formation of USDT and, probably, other stablecoins is achieved by connecting special trading algorithms that support the rate by arbitrage of about $ 1. However, as we can see, these algorithms don`t always cope. Again, it all comes down to liquidity. If USDT were 100% backed by US dollars, then such situations couldn`t have arisen in principle. Even if all holders wanted to exchange immediately their stablecoins for dollars, then the trading algorithms would have had enough liquidity and the rate not sag. However, what will happen if they have at their disposal 10% of the main capitalization? 5%? Here are some situations like this:
Let`s suppose, that traders send 100 million USDT for sale for dollars, but the trading algorithm has only 1 million dollars (due to incomplete security). In this case, the rate drop significantly, because the supply will be multiple of demand.
Do you need a stablecoin, which at any moment can dramatically depreciate by 10% or more?
Such problems will not arise in the case of CDC. Pricing will be formed in a natural market way. If suddenly one of the CDC exchanges falls in price, for example, by 5%, then each investor will be able to buy the token 5% cheaper, and then exchange it for diamonds, which in fact are 5% more expensive than they spent. Such an outcome is unlikely, because it is difficult to imagine a situation where someone would sell CDC cheaper than the price of diamonds, because ones can exchange the token for a diamond directly on the platform at a normal price. Similarly with the growth of supply. Many may think «What if they release a new pack of CDC, would it create inflation and the price become lower?». No, because every new CDC will also be provided with diamonds. Therefore, a course of 1 CDC will always correspond to a 0.05 carat diamond. But the diamond itself, of course, can both fall in price and grow. However, a centuries-old history shows that their price is growing steadily, even during times of crisis.
If we compare the dollar with other fiat currencies, then it is the leader for the cryptocurrency world at the moment. It is quite stable and allows to save capital during high volatility or a falling market. Accordingly, stablecoins pegged to the dollar have similar characteristics and purpose. However, all of them will no longer be needed after CDC appears on the market. If 5 years ago, USDT was a real revelation for cryptocurrency traders, since it allowed to trade in tandem with fiat on exchanges that don`t have this fiat, now the time has changed in this tool, as in all other stablecoins pegged to the dollar, no longer will be necessary. A real STABLEcoin will appear.