In the landscape of cryptocurrencies, asset-based coins have emerged as an innovative paradigm shift. Also referred to as tokenized assets or asset-backed tokens, these coins symbolize ownership of tangible or intangible assets. These assets range from commodities like gold and real estate to intellectual properties such as copyrights or patents.
Understanding Asset-Based Coins
Asset-based coins epitomize a unique breed of cryptocurrency, underpinned by real-world assets. The fundamental premise is to amalgamate the virtues of blockchain technology—transparency, security, and immutability—with the stability and credibility of traditional assets. For example, instead of conventional paperwork, the sale of a real estate property could be recorded on a blockchain, encompassing details such as ownership history, property deeds, and location.
Each coin denotes a specific portion of the underlying asset, with its value intricately tied to the asset’s worth. Unlike conventional cryptocurrencies like Bitcoin, whose valuation hinges on market dynamics of supply and demand, asset-based coins offer a relatively steadfast value proposition.
Advantages of Asset-Based Coins
- Stability: By virtue of being backed by tangible assets, asset-based coins exhibit lesser volatility compared to their counterparts. This stability renders them appealing to investors seeking refuge from the volatility inherent in the crypto market.
- Transparency: Leveraging blockchain technology ensures transparency and auditability of all transactions involving asset-based coins. This fosters trust among investors and serves as a deterrent against fraudulent activities.
- Accessibility: Asset-based coins democratize access to certain assets that might otherwise be prohibitively expensive or convoluted to invest in. For instance, acquiring real estate or gold can entail significant complexities and costs, whereas purchasing a coin representing a fraction of these assets is more straightforward and affordable.
- Liquidity: Trading on cryptocurrency exchanges confers liquidity to asset-based coins, enhancing the tradability of assets that may otherwise lack swift buying or selling mechanisms.
Prominent Asset-Backed Tokens for 2024
Considering factors such as market capitalization and growth potential, several notable asset-backed tokens are poised for attention in 2024:
Tether Gold (XAUT)
Tether Gold (XAU₮) revolutionizes gold ownership by offering a digital representation of physical gold on a 1:1 basis. With each XAU₮ token backed by one fine troy ounce of LBMA-standard gold, it ensures stability and credibility. Unique features include portability, divisibility down to 0.000001 ounce, and 24/7 trading accessibility. XAU₮ tokens can be easily redeemed for physical gold in Switzerland, and their storage is as straightforward as other cryptocurrencies. Transparency is ensured through Tether’s tracking system, allowing users to verify gold allocation in real-time.
cWBTC (CWBTC)
cWBTC (Compound Wrapped Bitcoin) serves as an ERC-20 token facilitating interoperability between Ethereum and Bitcoin. It’s a wrapped crypto token, representing Bitcoin locked in a digital vault on Ethereum, enhancing liquidity and enabling its use in DeFi transactions and dApps. Compound, a decentralized marketplace, hosts cWBTC, offering lending and borrowing functionalities for crypto assets. Users interact directly with Compound’s protocol, earning or paying interest rates derived algorithmically based on supply and demand. cWBTC joins a suite of supported assets on Compound, expanding opportunities for users in the Ethereum ecosystem.
cETH (CETH)
cETH, an abbreviation for Compound Ether, is a cryptocurrency issued within the Compound Protocol, a leading decentralized finance (DeFi) project specializing in loans. Users generate cETH by depositing ETH into a pool, representing their lending stake on the Compound platform. Holders of cETH can redeem it for the total amount of deposited tokens plus accrued interest, making it increasingly valuable over time. With a circulating supply of approximately 5.5 million cETH, its market cap is around $437.7 million. While freely tradable, cETH is primarily used for securing lending amounts and earning interest within the Compound ecosystem. It underscores the dynamic nature of DeFi, prompting careful consideration in investment decisions.
PAX Gold (PAXG)
PAX Gold (PAXG) is a digital token backed by physical gold, providing a secure and cost-effective method to own investment-grade gold. Each PAXG token represents ownership of one fine troy ounce of gold stored in LBMA vaults in London, custodied by Paxos Trust Company. Paxos offers PAXG with a lower cost structure compared to alternative gold tokens and ETFs, with no storage fees and a low minimum purchase amount. The allocated gold backing PAXG undergoes monthly audits and is held in LBMA vaults, ensuring security and regulatory compliance under the oversight of the New York State Department of Financial Services. PAXG transactions are free from settlement and credit risk, featuring near-instantaneous settlement and the option to redeem for LBMA-accredited Good Delivery gold bullion bars or unallocated Loco London Gold.
Olympus (OHM)
Olympus is a decentralized reserve currency protocol backed by the OHM token, each of which is supported by a basket of assets in the Olympus treasury. OHM aims to be a stable crypto-native currency, backed by assets like DAI. It employs mechanisms such as Protocol Owned Liquidity (POL) and Range Bound Stability (RBS) for stability and flexibility. OHM is deeply liquid, community-owned, and resistant to censorship. As of now, OHM is priced at around $12.07, with a 24-hour trading volume of approximately $722,681.60 and a market capitalization of about $198,022,023.
Tenset (10SET)
Tenset (10SET) is a prominent blockchain hub, nurturing startups and providing them with essential tools and marketing support through its Tenset Gem Launch Platform. As a deflationary token on the Binance Smart Chain, 10SET serves as the native currency for various services within the Tenset ecosystem, including a launchpad, airdrop platform, NFT marketplace, and gaming hub. Its deflation mechanism involves a 4% transaction tax, with 2% burned and the rest allocated for staker rewards, while the maximum token supply of 210 million decreases daily.
tBTC (TBTC)
tBTC (TBTC) is a cryptocurrency functioning on the Ethereum platform, designed to allow Bitcoin holders to mint TBTC tokens using their BTC holdings. These tokens provide access to decentralized finance (DeFi) applications on Ethereum. As of now, TBTC is priced at approximately $73,254.87 USD, with a recent 3.11% increase in value over the last 24 hours. It currently has a supply of 1.136 tokens, with none in circulation. TBTC is tradable on 16 active markets. Users can acquire TBTC by depositing BTC into a specific wallet via the TBTC Decentralized App (dapp) within the Bitcoin blockchain.
These highlighted tokens represent merely a subset of the diverse array of asset-backed tokens available within the market landscape. As the cryptocurrency domain evolves, further innovations and variations in asset-backed token offerings are anticipated.
Challenges and Risks
Despite their myriad advantages, asset-based coins aren’t devoid of challenges and risks. Chief among these is the imperative of ensuring proper management and custodianship of the underlying assets. This necessitates trust in the issuing entity.
Moreover, while asset-based coins exhibit lower volatility compared to conventional cryptocurrencies, they remain susceptible to market risks. Fluctuations in the value of the underlying asset directly impact the value of the coin.
In Conclusion
Asset-based coins herald a transformative era in the cryptocurrency realm, offering a synthesis of blockchain technology and traditional asset stability. However, akin to any investment vehicle, they entail risks and warrant prudent assessment and due diligence. As the landscape evolves, the trajectory of asset-based coins promises to redefine the contours of digital asset ownership.
Princy Agarwal, a postgraduate in English from Delhi University, writes content for Tricky Finance, where they simplify complex financial topics for readers. With a knack for clear communication, Princy’s work helps make finance understandable and accessible to all.
