What kind of assets are corporations bringing into the cryptosphere these days? By in large the answer is either centralized shittokens, or even more likely, stable coins.
Why is that?
Because corporations want to control their asset to the maximum in order to profit from it and not suffer the consequences of rampaging regulations, so they make a centralized product. On the other hand, they create a stablecoin because they already have fiat reserves to back up the token, so why not create an extension of those assets via a cryptocurrency and make money off of the corporate treasury? Win win.
However, corporations are now starting to acquire Bitcoin as a reserve asset in addition to USD.
It's becoming very clear that corporations are going to start offering aggregate tokens based off of their own provable holdings. Another name for these assets can and will be tagged with the label "index". Index funds already exist today and are quite widely used, especially for risk-averse investors like the elderly.
What Is an Index Fund?
An index fund is a type of mutual fund or exchange-traded fund (ETF) with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor's 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover. These funds follow their benchmark index regardless of the state of the markets.
Index funds are generally considered ideal core portfolio holdings for retirement accounts, such as individual retirement accounts (IRAs) and 401(k) accounts. Legendary investor Warren Buffett has recommended index funds as a haven for savings for the later years of life. Rather than picking out individual stocks for investment, he has said, it makes more sense for the average investor to buy all of the S&P 500 companies at the low cost an index fund offers.
The problem with Index Tokens is that in crypto, diversification is not a hedge, it only increases risk. Big dogg Bitcoin has so much market cap, security, liquidity, and decentralization that the other networks can't compare in terms of safety and lower volatility.
This means that in order to make the Aggregate Token more stable, one must add a higher percentage of Bitcoin or stable-coin assets into the bag in order to achieve the desired level of stability while still making sure not to miss out on any dark-horse moon monsters.
Example.
Corporation XYZ holds reserves in the percentages as follows:
- 50% United States Dollar
- 25% Bitcoin
- 10% Ethereum
- 5% Litecoin
- 1% ChainLink
- 1% Cardano
- 1% Monero
- 1% Rune
- 1% Doge
- 1% Bitcoin Cash
- 1% Tron
- 1% NEM
- 1% Uniswap
- 1% Maker
Now Corporation XYZ can create their own XYZ token pegged to this basket of assets. Anyone with XYZ tokens can now trade them on the open market, or destroy/sell them back to Corporation XYZ to receive their share of this basket of assets. This would be an advanced function that only trading bots and whales would use should the price of XYZ dip lower than the value of the basket they are floored to.
So why is this magic?
Because token XYZ has a floor, but no ceiling. Applications and functions can be built on top of the XYZ network to boost the value of the token higher than the floor price provided by the basket.
Examples of additional functionality:
- Governance token voting
- Gaming apps
- Social media apps
- Exchange fee discounts
- Smart contracts or other API functions
Sky Moon is the limit
So once enough functionality and value have been built on top of network XYZ, the token could moon to a far greater value than the baseline floor buy wall. Say XYZ Token is already trading x10 or even x100 higher than the buy wall, that means they could take away the buy wall and nothing would happen. The network would be strong enough to stand alone without the bundle of assets backing it up. In fact, once the value of XYZ goes high enough, the basket of assets is just sitting there doing nothing (just like traditional reserves) and they can reallocate those resources to leverage something else. Pretty sick bootstrap if you ask me.
Take away the peg? That sounds bad.
Was taking away the gold standard a bad idea? The deflationary mechanics of gold were choking the economy and running it into the ground. Precious metals don't make great currencies, no matter what Peter Schiff has to say about the matter.
The difference here is that network XYZ doesn't have to be a corporation. Network XYZ could start centralized but then break away and create a decentralized network that stands on its own and self-regulates with internal governance procedures. In fact, it is this kind of technology that ChainLink intends to facilitate via decentralized trusted oracles. Truly, the possibilities are endless.
Peg to gold = dumb
Many people in the space, and even more outside of it, think that pegging a crypto (or even Bitcoin) to gold is a good idea. Really? Heinously centralizing your network is a good idea? Who's going to hold the gold? How will users claim the gold? What happens if the gold gets stolen? No, you don't need a peg and a peg actually ironically ruins the entire system. This concept that crypto's value is based on nothing is a farce propagated by those who don't know what they are talking about.
The value of these trust networks is just that: Trust. We can't trust governments. We can't trust corporations. We can't trust banks. Bitcoin is a ridiculously inefficient garbage database whose only product is trust in the ledger. If the powers that be were trustworthy Bitcoin would have never taken root and would have been an absolutely pointless technology.
Instead we see that Bitcoin is a Unicorn asset doubling in value every year, which really speaks to just how corrupt the current system is, and really has nothing to do with Bitcoin itself. It's simply a hedge against deception, and corruption abounds in record breaking volume these days.
Conclusion
The more Bitcoin and other real cryptocurrencies corporations acquire, the more we will see a shift of assets pegged to an aggregate index of reserve assets rather than these boring stable coins. After all, if you have billions upon billions of dollars in reserves, why not use those reserves as leverage in a more profitable endeavor? Crypto provides the tools to accomplish this in ways that the world never thought possible or even considered.
It also greatly simplifies the process of onboarding newcomers. Many many users come into the space not knowing what to invest in and they get absolutely wrecked. By instead investing in a basket of asset provided by an index fund they can rest easy knowing they have good exposure and don't have to keep track of dozens or even hundreds of assets. All that data is stored in the value of a single token.
Central banks have been eating the lunch of corporations for generations. Now they have the tools to break away and x2 their value every year like Bitcoin. This also implies that the central bankers have been x2ing their value every year secretly for decades. They've been sucking down all the gains from innovation for decades. No longer. It's time to distribute that value to the world through decentralized ledger technology. The Internet itself can now store value, and even I don't fully understand what that means yet.
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