Problems of Fiat Collaterized Stablecoin.
Stablecoins aim to bridge the gap between Fiat currency and Cryptocurrency by giving each coin it holds a backup asset therefore giving it an intrinsic value. The backup asset in stablecoins are mainly commodities such as gold or Fiat currency.
What is a Fiat Collaterized Stablecoins?
Fiat Collaterized stablecoins are stablecoins that are pegged directly to the Fiat money. For example such as USDT or USDC that are valued at $1.
But What if the value of the collateral keeps dropping?
The essential function of a collateral is to protect the value of an asset from losing all its value. Now the problem with stablecoins such as USDT or USDC is they are pegged to the US Dollar. US Dollar on itself was originally pegged to gold, so as the money supply increases like in recent cases due to the stimulus check of the pandemic, the stablecoins are also getting devalued as they are directly pegged to it.
Why physical asset is much better as a collateral?
As these collateral forms the backbone for the stablecoins, it is much considered to choose a collateral that has stored it's value overtime and increases the intrinsic value of these coins to protect it from economic crisis or recessions for example gold. As gold has been a store of value for 100 of years and its function still remain intact till now.
We in Nagaya Technologies believes that is vital that a cryptocurrency’s Intrinsic Value can stand the economic crisis. Nagaya (NGY) coin is initially 50% backed by Pure LBMA Gold. And what’s fascinating is, the Gold that backs each Nagaya (NGY) coin will increase in amount, as Nagaya Technologies runs physical projects to increase the Gold Reserve.
For More information, visit www.nagaya.io
Or come talk to us at t.me/nagayaofficial
