Citizens for Sound Money created the term “Asset Backed Digital Currencies” (or ABDCs) due to confusion on the various nomenclature. Here is an excellent article on what an ABDC is that resulted in our discussion with Nate Fisher. In short, it is a currency tradeable on the blockchain (like crypto currencies) that is backed by and can be redeemed for a physical asset. This is in contrast to:
- Crypto Currencies – While an ABDC could be thought of as a crypto currency since it uses the blockchain for accounting and transfers, the traditional crypto is not backed by a physical asset. Some see this lack of backing as an advantage since there is no counter-party. But that’s comparing apples to oranges. Not having a counter-party is an advantage, while not being backed by a physical asset is a disadvantage.
- Stable Coins – These are crypto currencies backed by something that is designed to give the coin a stable value. Tether is an example, backed by the US Dollar. Tether shares the same disadvantages of the USD (inflation erodes it’s value), but the advantage of easy transferability. Recent debates about whether Tether is backed 1:1 by USD have given the term stable coins a bad name. While ABDCs could be considered stable coins, a new term was needed to distinguish it from fiat backed stable coins.
Some existing ABDCs are Kinesis KAU/KAG. Pax Gold, LODE, and others. Much like the day when there were numerous local banks that gave out their own certificates when depositing gold/silver, there are likely to be an increasing number of ABDCs. Competition in the space is a good thing for users. Also this can provide users some diversity against counter-party risk.
Kinesis is unique due to it’s yield engine and it being the only one to offer a silver based ABDC (KAG). For more information on Kinesis see the article “Sound Money with a Digital Twist”.