Buy low, sell high, goes the old investing maxim. The crypto world has stood a lot of things on its head. So, here’s one bit of a twist. Buy high … keep buying higher?
That’s a bit tongue-in-cheek, but brings to mind all that has happened in the cryptocurrency world in the past few years. After all, the speculation that was a hallmark of digital coins was — and, in some cases, still is — based on the idea that if one kept buying (no matter how high the price), there would always be someone willing to buy higher.
Then the bottom fell out. The poster child for the space, bitcoin, has gone from pennies per bitcoin to more than $19,000 at its peak, back down to roughly $6,480 today. Many coins have lost 80 percent off their peak and others have gone the way of the dodo.
The initial coin offering (ICO), that storied vehicle of bringing new coins to market, has had a spate of success and a number of failures. Consider that just a few short months ago, research spotlighted in this space (via Boston College) showed that of 4,000 ICOs that raised a collective $12 billion, fewer than half were around four months later. The flame was lit, and flamed out.
Coming to market in a space littered with digital coin corpses, Oneiro, backed by COSIMO Ventures, said Thursday (Sept. 13) that it has launched ndau (“en-dow”), billed as “the world’s first buoyant coin optimized for long-term store of value.” The coin is unpegged, which means it is not tied to the fluctuations to any fiat currency, such as the dollar. Oneiro said it had sold $15 million of ndau via private sale.
Beyond the unpegged nature of the coin, the company said there are “incentives and economic controls” built into the ndau blockchain that improve on the ways digital coins and non-digital currencies are traded and fluctuate. More on those “built-ins” in a moment, but in a nutshell, the minds and money that back ndau seek to have one important distinction in the cryptocurrency realm: The creation of a coin that seemingly defies gravity and goes in one direction … up.
In an interview with Karen Webster, Ken Lang, an early ndau collective member and CTO of COSIMO and Jim Kent, CEO of Oneiro, took note of the very volatility that has marked cryptos, which the two executives claim ndau is designed to sidestep.
In any investment, in any allocation of funds, one must know the reasons why they would do well to put their hard-earned money into that vehicle. Similarly, with any new wrinkle on the crypto firmament, where the hope is “this time, it’s different,” one must take note of the problem that is being solved by the newcomer.
The Problem (Which Problem?) Solved
As Webster asked: What is the problem that is being solved, and why do we need a new currency to solve it?
“Fiat currencies, like the U.S. dollar,” Lang said, “are designed with a mandate to be inflationary.”
Every year that there is inflation, those currencies lose bit of value, he noted. They are relatively stable and work well when the holder wants to buy something over the short term. However, beyond the mere transactional use, Lang stated that holders of currencies (or of all assets really) want to have something that will rise in value over time. Thus, the wholehearted embrace of cryptocurrencies, such as bitcoin and Ethereum, where the perception among buyers was/is that they would increase over time.
The fatal flaw, though, has been that nothing is in place to check that volatility. Lang explained that those holdings, and peers, have been marked by volatility that has been tough for people to stomach. He said, “There really isn’t anything in the crypto world right now that addresses long-term store of value.”
Beyond the general hope of cryptos being adopted more fully among investors and users (to transact), Lang and Kent stated that ndau ideally represents a new kind of asset class that people will join. For example, they could save up to buy something in the future or collect cryptos as a pool of assets that can be managed for others (i.e., a fund), or can be used to pay for college down the line.
Buoyantly Bouncing Beyond The Floor?
However, to get that buoyancy after converting fiat to ndau and, ultimately, exit with that long-term value (where bubbles have popped elsewhere), Webster asked how this stablecoin is not only stable, but projected to rise.
The duo explained that the ecosystem is one where proceeds from ndau sales flow into an endowment — hence, the name ndau. That endowment can be invested across any number of asset classes, but its purpose is to serve as a source of liquidity to support ndau’s price.
The endowment functions much in the same ways that central banks do — complete with market-makers who, once ndau is listed on exchanges, will buy and sell the currency. When price pressures arise, excess ndaus are taken out of circulation, thus, establishing a floor price. In essence, Lang said, the floor price is computed based on those assets held by the endowment.
For every 1,000 ndaus purchased, the price for new ndaus to be sold goes up a bit. There is an exponential curve of higher prices, explained Kent. The proceeds from the sale go into this endowment, which is always growing larger and supporting a higher floor price.
Kent said that likening this to, say, a money market fund is not a direct read-across, as those funds are impacted by external market forces. That is not to say the price will always go up. As Lang noted, if someone sells ndau too rapidly, there will be a decline.
“But if there is a good economic mechanism in place, then those declines will be reduced and then the price is restored,” Lang said. “No one can make this a single line going straight up. We are trying to create a market force and incentives that tend to drive it in that direction.”
Every 1,000 ndaus sold are incrementally higher in price than the previous 1,000 batch. To do that (and to counter a cut-and-run mentality that may mark cryptos, at least at present), Lang noted that buyers and sellers typically incur a transaction fee in crypto transactions. The fee tied to ndau is dynamic: The more the market price falls from target price from which the ndau was most recently sold, the larger the fee gets. Holders are disincentivized from selling when the price declines. The idea is to create a set of forces that encourage being patient rather than cutting and running, Lang said.
“What happens is you’ve created an emergent kind of behavior for the whole group and for the market that is stable, and so you don’t see the big runs on the market downward,” he said. There is the option, though, to lock up ndau for relatively long periods of time, where such longer-term holders will get 15 percent of additional ndau per annum.
The Regulatory Landscape
Inevitably, the questions of security and regulations came up — amid ICOs breached and digital wallets emptied. For security, the two executives pointed to a multi-key strategy that can revoke or replace keys. There are also consumer protection delays where, as Lang noted, if something gets stolen, a user can send disputed trades to resolution.
Of course, regulation looms large. After all, the crypto markets hit new multi-month lows this week as a New York judge ruled that a U.S. securities law can be applied to combat fraud in the crypto space. There seems to be the eternal debate over whether coins are, in fact, securities and should (and will) be regulated as such. Lang replied that while ndau’s backers are doing the best they can to follow regulations, cryptocurrencies should be able to regulate themselves.
“You don’t want to put that burden on the regulators if you can do a really good job of that yourself,” Lang said. “In our case, we have really focused hard on digital governance.”
Lang and Kent asserted that the operation of ndau is overseen by the Blockchain Policy Council (BPC), its members elected by ndau holders.
“We’ve tried to take a look at the non-digital world,” Lang told Webster, “and see that, ‘Hey, it’s not all bad.’ Cryptocurrencies like the day we’re going to change everything … but we’re trying to take the best of both worlds and make people feel more comfortable that they’ve got protections in their cryptocurrency ownership.”
It sounds like a bit of a stretch without a regulator overseeing things, and the promise that where there is an up, there are only more ups. So, as cryptos plumb new lows, and a buoyant coin bows: Is this time different?