One of the key aspects of digital investments is the nature of the asset – who runs custody, how is it managed, who proves an asset is what it is, and how can we properly analyse supposed ‘ real asset backing’ in the case of stable coins. I’ve talked a lot about this with NFTs and digital art where the debate around who owns a digital asset and what rights it bestows is already a hot topic. It’s also a key issue for fund managers as well. And as crypto apps make their way into the mainstream of personal finance, it’ll become a mainstream issue.
One example of the latter is the news this week that one of my favourite apps Ziglu has launched what’s called the Sterling Boost investment. This “converts your money into a sterling stablecoin, which we put to work for you to earn a 5% interest rate.”
This is an interesting hybrid that looks and walks like an investment account but is being marketed as something closer to a savings account. But dig around and you find that your money is moved into a sterling stablecoin called TrueGBP (TGBP). “TGBP is linked one-to-one to sterling, meaning that its value is precisely tied to the value of sterling…. We then borrow that TGBP from you. We partner with leading lending platforms, who lend the TGBP to institutional investors, such as hedge funds, who have a specialised requirement for using TGBP. Lending your stablecoin generates a return, which we pass back to you. This return is equivalent to an annual percentage rate of 5%.”
You can find out more about this sterling stablecoin here – https://www.trusttoken.com/. I’m trying to educate myself on this relatively new product but I would note that it is not exactly a huge digital currency with market cap of just £16.6m. The key selling point seems to be that issuer emphasises proof of reserves via a third party : https://www.armaninollp.com/software/trustexplorer/proof-of-reserves/
The economist and banking commentator Frances Coppola has done an excellent in depth analysis of another stable coin called Tether which you can see here : https://www.coppolacomment.com/2021/05/tethers-smoke-and-mirrors.html
It’s well worth a read but for brevity I’d highlight her withering judgement on Tethers supposed money fiat reserves : “If a bank produced an attestation like this as proof of reserve adequacy it would be marked zero out of ten and sent back to redo its homework.”.
I haven’t been able to dig around enough about this sterling stable coin to make any comments but I can’t help but think it needs a bit more explanation. Then again investors might be tempted by that interest rate and the other key features which include:
- “Interest paid weekly – they pay each week’s interest to the account every Saturday morning. You can withdraw the interest payment to your cash account or leave it in your Sterling Boost account to grow your balance.
- Instant access – You have instant access to the funds in your Sterling Boost account. There are absolutely no penalties, fees or costs for adding to or withdrawing between your Sterling Boost account and your Ziglu cash account.
- Get started from £1 – You earn 5% interest on the whole of your balance, no matter how large or small. You can get started from £1, and can invest up to £10,000 into your Sterling Boost account.”
Ziglu already pay interest on their Bitcoin Boost interest account so this is just an extension of the same idea, one hopes with less price volatility (given it’s a sterling stable coin, being marketed in sterling).
Cynics might also want to dig around inside the fiduciary side of this and the nature of the institutions borrowing the coin to make money.
This brings me nicely to an event next week hosted by my colleagues at ETF Stream. Titled Cryptocurrency ETPs: Digital assets take centre stage, its a webinar on the Bright Talk platform next Thursday the 10th at 2pm. You can register online now here
The webinar will “explore what is driving the institutional demand for crypto ETPs and why including digital assets in a diversified portfolio is becoming the most important asset allocation decision in a decade.”
- Bradley Duke, Co-Founder and CEO, ETC Group
- Edd Carlton, Institutional Digital Asset Trader, Flow Traders
- Charlie Morris, Chief Investment Officer, ByteTree Asset Management
My unanswered questions include some or all of the following:
- With NFTs, how do you stop the original creator making replicas of your asset?
- With investment products how sophisticated are the technological defences stopping crypto thieves form hi jacking an asset? And if you make it too safe does that get in the way of liquidity
- With digital assets that are lent out, what’s the due diligence process on the borrowers?
- Can anyone devise a method of checking a digital asset that doesn’t involve frying the earth with huge energy consumption?
- Is there any chance that a central bank somewhere will actually embrace a private sector currency and give it some form of supervision? I’m guessing no but you can dream.
- With physical gold ETPs one can actually look and examine the custody list and print outs. Can you do the same with vault stored crypto assets?