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What are stablecoins?

TrueUSD: Can it be trusted?

Trust is extremely important in the crypto space. Here, we take a look at TrueUSD to see whether it can be trusted as a stablecoin

The issue of trust is well-documented in the crypto world. One aspect of crypto is to facilitate peer-to-peer transactions that are trustless.

This was part of Satoshi Nakamoto’s vision when Bitcoin was first conceptualised. The Bitcoin white paper reads, “what is needed is an electronic payment system based on cryptographic proof instead of trust.” But, many tokens cannot be fully trusted.

Another aspect of crypto was to create an alternate payment system. Yet, the crypto markets are incredibly volatile and so crypto cannot fully serve as this alternative method, at least not at this stage in time.

Stablecoins were devised to be pegged to fiat to reduce the impact of this price volatility. TrueUSD is pegged one to one with the US dollar.

Here, we take a look at the TrueUSD coin to see whether it can be trusted.

What is TrueUSD?

The TrueUSD coin is part of the TrustToken asset tokenisation platform. It is a blockchain-based stablecoin.

Some stablecoins are pegged to a certain token, such as Ether. However, TrueUSD is similar to Tether in the sense that it is backed by fiat currency.

Stablecoins pegged to fiat are traditionally safer than those pegged to another token. This is because having a stablecoin pegged to another token does not mitigate against volatility. For example, if the price of Ether suddenly dropped, so would the stablecoin pegged to it.

This doesn’t mean that a stablecoin pegged to fiat is 100% safe, but it is less likely to experience the levels of volatility that other cryptocurrencies succumb to.

TrueUSD is an ERC-20 token. ERC-20 tokens are designed to be solely used on an Ethereum blockchain.

How is TrueUSD backed?

The system TrueUSD has in place functions by storing US dollars in the bank accounts of multiple trust companies rather than in a single bank account controlled by a single entity.

The trust companies who have custody over the US dollars must sign an escrow agreement. An independent third-party accountant will then verify the escrow agreement. This information is then published in a monthly attestation report.

How can you apply to acquire TrueUSD?

To apply online to acquire TrueUSD, you must first complete Know-Your-Customer (KYC) and Anti-Money Laundering (AML) tests.

These two tests are necessary for compliance reasons. The KYC one is to ensure that a customer does not have the intention of committing illegal actions. The AML test assesses a customer’s likelihood of laundering money. KYC and AML tests are commonplace in the financial world.

Once a user has completed the checks, they can send USD to one of TrueUSD’s trust companies. After the funds have been verified, the TrueUSD smart contract will execute and issue the tokens to the user.

A smart contract is a special contract that is written into the code of a blockchain. It can only be executed once all parties have upheld their side of the bargain. This is one method to ensure trust, at least on a peer-to-peer basis.

The tokens will be issued on a one-to-one basis and sent to customers’ Ethereum wallet addresses. Once the tokens are in a wallet, customers can transfer them or use them as payment.

Customers can also redeem their US dollars from TrueUSD. To do so, all they must do is return the TrueUSD tokens to the smart contract address. The trust company will then be notified and it can return the US dollar/s.

Once this happens, the TrueUSD users send back is ‘burnt.’ This process is necessary for ensuring that there is always a one-to-one ratio of TrueUSD to the US dollar.

Can it be trusted?

TrueUSD is partnered with Cohen & Company, a reputable auditor. It publishes attestations to verify that TrueUSD holds the amount of US dollars in the escrow service it claims to.

Cohen & Company’s report on January 2nd 2019 revealed that the number of TrueUSD tokens issued and in circulation clocks in at 206,371,311.

The TrueUSD blockchain, at the time of writing, displays the total supply as 206,986,214.94.

Cohen & Company’s report also highlights that TrueUSD is using the services of Prime Trust, LLC and Alliance Trust Company of Nevada as its escrow agents.

The Cohen & Company report states that the escrow management is compliant with the relevant regulations. However, it also states it did not perform any procedures relating to the operating effectiveness of TrueCoin LLC’s internal controls.

For the most part, TrueUSD is legitimate. At least according to Cohen & Company.

However, as with all projects and companies, we do not recommend any one in particular. Treat TrueUSD as you would any other cryptocurrency: with scepticism.

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