Blockchain technology is fast earning the reputation of the disruptive technology it is known for. Recent announcements by Kevin O’Leary have further spurred the adaptation of blockchain technology through the upcoming sales of one-third ownership of an extremely reputable NYC hotel via an Initial Coin Offering (ICO) worth $400 million.
If this initiative takes off through a smart contract approved by the U.S. Securities and Exchange Commission (SEC), this would be a pioneering investment structure, replacing shares with coins. O’Leary is famous for his role as an investor in the American reality TV show “Shark Tank” as well as for founding SoftKey Software and O’Shares Investments. He is also adamant about working together with regulators, adhering to the rules, and offering potential investors the same amount of information that comes with the stock initial public offerings (IPO). Regulations are coming into place with the SEC now requiring all platforms providing the trading of digital assets that are securities to be registered with them.
This is much needed positive news for the volatile performance of cryptocurrencies to build trust, acceptance, and stimulate growth. O’Leary believes that small cap stocks will be replaced by asset-backed cryptocurrencies which further enables companies to bypass the bevy of Wall Street intermediaries. The blockchain technology enables cost reduction due to its decentralized nature as well as its independent verification of data. At the same time, it also lowers the barrier to entry for potential investors by increasing liquidity. Some has likened the replacement of small cap stocks by asset-backed cryptocurrencies to crowdfunding, the accumulation of funds through a large number of individuals.
Being asset-backed would lend a lot of credibility towards cryptocurrencies as it adds tangibility to its value, which brings about inception of the term “stablecoins,” a price-stable cryptocurrency. There are increasingly more and more asset-backed cryptocurrency such as the newly launched USD-backed cryptocurrency TrueUSD and the upcoming gold-backed cryptocurrency Royal Mint Gold (RMG). However, it is good to note that the most established stablecoins thus far; USD-backed Tether has also suffered significant instability from supposed hacker attacks.
Another USD-backed stablecoin, Dai has also experienced temporary price drops on the Chinese exchange Bibox despite holding up other exchanges due to a flaw in the way it is pegged to the USD . The saying you reap what you sow is very relevant here. Before “sowing,” assess the potential of the “seeds” carefully. Asset-based cryptocurrencies pretty much means being pegged to an asset and the due diligence here would be establishing the integrity of the asset it is pegged with as well as the mechanism used for behind the peg.
