
- Tether has unveiled a new โtethered assetโ product called Alloy.
- Alloy intends to offer price stability using usersโ assets.
- aUSDโฎ is the first Alloy token. It tracks the value of the U.S. dollar and is backed by usersโ Tether Gold (XAUโฎ).
Tether, primarily known as a stablecoin provider, has established itself as a cornerstone of the cryptocurrency market with its USDโฎ stablecoin. Deployed on multiple blockchain networks including Ethereum, Solana, and TON, USDโฎ plays a crucial role in bridging the gap between digital assets and the U.S. dollar.
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The companyโs product lineup includes stablecoins pegged to other fiat currencies such as the euro and yuan, as well as Tether Gold (XAUโฎ,) which is touted as a digital representation of gold. However, Tether has unveiled a new category of digital assets called โtethered assets,” which track the price of a specific reference asset, such as the U.S. dollar, but are backed by usersโ assets in a collateralization process.
How Tetherโs aUSDโฎ Token Works
Tethered assets are an innovative category introduced by Tether, with the aUSDโฎ token tracking the value of the U.S. dollar while being backed by usersโ Tether Gold tokens. This unique structure aims to combine the stability of the dollar with the intrinsic value of gold, creating a hybrid asset that leverages the strengths of both.
The smart contract continuously recalculates the CMP as the collateral’s value fluctuates. This real-time adjustment enables users to add new collateral and create more Tethered Assets as needed.
However, if the value of gold drops below a set level (less than 75% of the collateral value), the deposited assets are liquidated. In such cases, “specialized actors” can purchase the collateralized Tether Gold assets at a small discount, ensuring the overall stability of the Alloy ecosystem by keeping aUSDโฎ within specific parameters.
Once minted, Alloy tokens become available in the user’s associated wallet, ready for a variety of applications such as spending, saving, or perhaps further investment once the Alloy ecosystem expands.
What Are the Differences Between aUSDโฎ over XAUโฎ?
While Alloy (aUSDโฎ) and Tether Gold (XAUโฎ) both offer gold exposure, choosing one over the other depends on an individual’s specific financial needs and investment strategy. The differences are as follows:
- Underlying asset: aUSDโฎ is designed to track the value of one US dollar. XAUโฎ represents ownership of one troy fine ounce of physical gold.
- Collateralization: aUSDโฎ is over-collateralized by Tether Gold (XAUโฎ). XAUโฎ is directly backed by physical gold stored in a Swiss vault.
- Purpose: aUSDโฎ aims to provide a stable, dollar-pegged asset while allowing users to maintain exposure to gold. XAUโฎ is designed to provide direct exposure to physical gold in a digital token form.
- Creation process: aUSDโฎ can be created by users depositing XAUโฎ as collateral. XAUโฎ is issued by Tether Gold when users purchase tokens backed by physical gold.
- Price stability mechanism: aUSDโฎ uses over-collateralization and secondary market liquidity pools to maintain its peg to the U.S. dollar. XAUโฎ’s value fluctuates with the price of physical gold.
- Redemption: aUSDโฎ’s redemption process is the return of XAUโฎ tokens. XAUโฎ can be redeemed for physical gold, subject to minimum requirements and fees.
Final Thoughts on aUSDโฎ
Tetherโs aUSDโฎ token offers a new approach to price stability by collateralizing usersโ assets. However, Adam Cochran, a partner at Cinneamhain Ventures, highlighted a distinct disadvantage of aUSDโฎ in the onboarding process. Cochran stated that a userโs wallet is required to be whitelisted before being allowed to mint aUSDโฎ.
Whitelisting a wallet involves submitting Know Your Customer (KYC) information, including proof of address and photo ID, and paying a $150 registration fee, making aUSDโฎ unappealing to privacy-minded individuals.
The issue is compounded by the fact that Tether Gold (XAUโฎ) is readily available for purchase on decentralized exchanges like Uniswap, which operate without restrictions or personal information requirements.
Looking ahead, Cochran speculated that aUSDโฎ may be just the first of many tokens under the “Alloy” banner, all employing the same user asset collateralizing process. Cochran further suggested that Tether would roll out Alloy tokens backed by yield-bearing DeFi assets, instead of Tether Gold, which would offer greater integration with the DeFi landscape.
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