[THE INVESTOR] Price volatility has been pointed out as one of the biggest hurdles for cryptocurrencies to go mainstream. Stablecoin, a type of virtual currency with price stability, was created to eliminate the highly unstable characteristics of digital coins.
Tether, whose value is pegged to the US dollar, is one of the best known stablecoins in the market. It has been, however, criticized for its opaque operations as the team has failed to successfully fulfil audits to prove they have actual US dollar reserves.
Nevin Freeman, CEO of Reserve. (Reserve)
Nevin Freeman, CEO of San Francisco-based stablecoin firm Reserve, said he has concerns over other existing stablecoins as well, including Terra, warning they could end up being a failure.
“Terra is a kind of project, if it gets to a substantial size, could break and cause massive destruction,” the Reserve CEO said in an interview with The Investor in Seoul on Sept. 16.
Terra, a Seoul-based blockchain platform, plans to utilize its own coins to attract users, giving them out as rewards to those who purchase items on e-commerce platforms.
In that business model, Terra may have to keep pouring money back into marketing schemes to make more people spend their tokens on the platforms of Terra’s partners.
“If everyone ends up convinced that Terra is going to win and grow, then it could work. But if not, then you can have a catastrophic failure,” Freeman said.
Another issue, he explained, is that if Terra’s coin is classified as security, the company will be banned from handing it out to people as incentives since it is illegal to do so, he emphasized
Reserve, one of relatively nascent stablecoin projects, is aiming to replace inflationary currencies, becoming a solution for countries that are struggling with falling fiat currencies and high inflation rates.
Although it is still in the development stages, Freeman and his team have raised US$5 million in its seed round from more than 40 funds and investors, including PayPal co-founder Peter Thiel, Coinbase Exchange and GSR.
He attributed the successful fundraising to the team’s experienced developers and engineers, who used to work for companies like Google and OpenAI.
“Seasoned investors bet on teams rather than projects. I think that after they met our team, they thought, ‘These people have a real shot if they are building this,’” he said
It was not just about the background of Reserve team members, but their vision and technical insights for the stablecoin project, he added.
Instead of being pegged one-on-one with any particular fiat currency, the Reserve coin can be pegged to other digital assets, which are stored in the firm’s smartcontract system Vault.
The company maintains a balance between supply and demand for price stability, selling or buying back Reserve tokens with what is called Reserve Share, a less-stable token also issued by the firm.