Some thoughts - tokens & asset backed crypto

As much as I espouse cryptocurrency and the future that it holds, I love to read up counter theories on it to get a more balanced view.

I want to deepen my understanding on how things work or could work out, and the risks when things don't work out the way we thought they would. Not a bleeding heart here and also no interest in putting up sexy posts on how much money I have made in crypto, I am not a numbers showy blogger. Just wanna share some articles I have came across and points to highlight. 

Read also my previous post on Making sense of DeFi

Crypto tokens


With tokenized assets on the rise, we are seeing more and more platforms / institutions capitalizing on them (legit or not I don't know, DYDD). Yes there are tokens for all sorts of things from tweets, collectibles, gold, to even Astrea bonds! Mind you that tokens are not equal to cryptocurrencies, although you can swap cryptocurrencies for tokens. 

NFTs are a subset of crypto tokens. You can read about tokenization here. Tokens are units of value that blockchain-based organizations or projects develop on top of existing blockchain networks. While they often share deep compatibility with the cryptocurrencies of that network, they are a wholly different digital asset class and are NOT cryptocurrencies. [Reference: Cryptopedia]

Example: Tokens built on the Ethereum platform are known as ERC-20 tokens.

Token value are subjected to the utility roadmap drawn by their respective project makers, such as the tokenomic and maximum supply. You can find them usually in whitepapers of the projects.


There are no-doubt much benefits for use of tokens in terms of liquidity and accessibility, however, bear in mind the risks such as security and regulations, also who would hold accountable custody to those tokenized physical assets.

Stablecoins - asset backed and algorithmic


Asset-backed stablecoins can be either dollar-backed or gold-backed. As the name "stablecoin" suggests, stablecoins are supposed to have relatively stable pricing as their prices are pegged to the underlying assets. They reside on blockchains and can be likened to fiat currencies for the purpose of deposit or swapping for other cryptos. I think that with an increase in the adoption of dollar-backed stablecoins, it would help to keep up the demand for USD. We need fiat USD to buy stablecoins like GUSD, USDC and USDT afterall from exchanges. [Read also: Understanding counter-party risk]


By the way, digital yuan is coming. They can't let USD have all the limelights right? (With crypto vortex kept sucking in the currencies...)



Algorithmic stablecoins do not have real assets backing their values, instead its price-peg mechanism is determined by an algorithm or the protocol's smart contract. 

The smart contract rules will ensure an increase in supply of the stablecoin in an event of deflationary tendency or a reduction in supply in event of inflationary tendency. You can read more in this external article. Examples are FRAX and UST.

Woke reads

(data is outdated, just read conceptually)

"To be clear, this is only an analysis of quantitative performance; to accurately judge the best stablecoin, there are many qualitative factors to evaluate as well. For fiat-backed coins you need to judge the counterparty/credit risk of the issuer and the credibility of their financial audits. It’s also worth nothing that the regulated stablecoins (PAX, USDC, TUSD and GUSD) all appear to have backdoors for law enforcement to access and freeze tokens, which were required by financial regulators and were fully disclosed by the project teams.

As far as crypto-collateralized coins, there is always some level of risk of smart contracts being hacked or code otherwise malfunctioning. There is also the possibility that if cryptoasset prices fall too much too fast, even an over-collateralized stablecoin could break its peg."


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The multi-billion dollar question... will there be a crypto BIG SHORT some day?

"It’s hard for crypto exchanges to get banked, but Coinbase, Bitstamp, and several other high-quality exchanges manage it by maintaining strong know-your-customer (KYC) and anti-money-laundering (AML) controls internally."


"Bitcoin was clearly correlated with Tether; Tether was clearly being issued at a frantic rate; and that issuance had a high probability of being backed by nothing at all."

I think it's still in the midst of showing clarity to that. It has been a white elephant that almost every was adorning (look at its cap) and no one seemed cautious about its shit since 2017 till lately.

As for bitcoin, we now know that it is... well... not exactly correlated with Tether (given the difference in their market caps), but with so much more of others.


"Bob: You send your USD to Coinbase and buy Bitcoin with it. Then you move your Bitcoin onto Bybit and trade with it there.

Me: Hang on. If that’s the case, then why would anybody ever use an unbanked offshore exchange that trades purely in crypto? What does Bybit offer you that Coinbase doesn’t?

Bob: Leverage. I personally only use 2–3X leverage, but they let you leverage your positions up to 100X if you want. You can’t do that on Coinbase."

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Disclaimer: Contents of this blog are personal opinions and NOT financial advice to buy or sell any mentioned securities, commodities or assets.

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Disclaimer:

The contents of this blog are author's personal opinions and do not constitute advice to hold, buy or sell any securities, commodities or assets mentioned. I do not guarantee the accuracy and reliability of any information provided, and shall not be liable for any losses incurred from reading my posts or using the materials herein. This blog may contain affiliate links to external sites.