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Recent crypto fiascos warrant another look at asset-backed crypto tokens

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Recent crypto fiascos warrant another look at asset-backed crypto tokens

June 23
18:00 2022

SINGAPORE – 23rd JUNE, 2022 – Recent headlines in the crypto space have been dominated by troubled projects that lack tangible underlying fundamentals, which could warrant another look into viable digital tokens backed by physical assets.

The most recent case is the debacle surrounding LUNA and its algorithmic stablecoin TerraUSD (USDT), which lost its peg and triggered a death spiral of the two digital assets, dragging their prices down by over 99%.

The event wiped out about $40 billion in investments made into the Terra ecosystem overnight.

To salvage matters, Terra’s founder, Do Kwon, had in mid-May outlined a plan to fork the blockchain, with the old blockchain to be renamed Terra Classic.

The new blockchain would be called Terra (LUNA), with the new token to be airdropped to those who held their LUNC (Luna Classic) tokens before and after the de-pegging incident.

Terra 2.0 launched with heavy volatility on May 28, with its $18.85 listing price dropping over 70% during its debut. It remains to be seen how the project would fare after the fiasco.

Meanwhile, the South Korean authorities are reportedly looking at the Terra crash to check for signs of market manipulation and other issues. South Korean authorities have reportedly summoned all employees at Terraform Labs as part of a full-scale investigation of the collapse of UST and the LUNA token.

In the wake of the incident, South Korea revived its feared investigative unit known as The Grim Reapers of Yeoui-do – a financial and securities crime joint investigation team – to look into the Terra crash, with a representative of the unit citing the severe damage caused to average citizens as the reason behind its investigation.

Another similar concern, as a result of a domino effect from the LUNA/UST debacle, is also arising with the Celsius Network, where doubts are starting to arise as to whether the high yield offered by its lending program can be sustained if the program had exposure to LUNA and UST.

Another crypto-related area that has seen rampant baseless valuations is the non-fungible tokens (NFT) space, which has seen many project teams and founders running off with investors’ monies, leaving holders with nothing to show except a JPEG of an animal-themed Twitter profile picture.

This includes the popular Azuki project, which saw its pseudonymous founder Zagabond detailing his involvement in many other abandoned projects.

On the other hand, there are other projects that do plan to offer NFT holders some utility in the future, as these assets could potentially be integrated into an upcoming metaverse project or videogame.

A website, a vague roadmap, a minimum playable demo and an anonymous team could be all it takes to attract attention in the space, and many have parted with their cryptocurrencies for much less.

Many similar projects raise funds for marketing purposes rather than actual development, and most eventually run out of steam due to their unsustainable structure and general lack of fundamentals.

The nagging issue of digital assets not being backed by real-world assets is one of the main factors behind the volatility in valuations of these virtual tokens.

While there are still fluctuations in the value of crypto assets backed by real-world assets, such as stablecoins, their volatility is comparably lower thanks to the underlying reserves of fiat currency.

A report entitled Tokenization of Assets by Ernst & Young pointed out that ‘Stablecoins still fluctuate to maintain a one-to-one equivalence [to their fiat counterpart], but their volatility is lower than that of crypto assets such as Bitcoin, because they derive their value from their underlying asset.’

Founder & Project Lead of Diamond Alpha Melvin Tan Wei Yang (陈伟洋) said, “To successfully bridge the gap with traditional finance investors, it is important for blockchain and cryptocurrency projects to carry a sense of realism and objectivity with them. It cannot be the case where the value of an NFT or token is based solely on hype and subjectivity.”

“Diamond Alpha is the perfect conduit for this as it provides traditional finance investors with a real-world asset to investigate and evaluate, with a transparent growth trajectory,” Melvin.

Diamond Alpha uses fractionalized NFTs (F-NFTs) to offer fractionalized ownership of a physical, real-world commodity – lab-grown diamonds.

The project seeks to allow users from anywhere in the world to partake in the diamond-growing process through Web3.

These F-NFTs represent the rights to a batch of diamond seeds, and holders can swap the F-NFTs they purchased to receive returns in BUSD or USDT, when the seeds grow into rough diamonds, which are then encashed approximately 15 to 25 days later.

These returns are derived based on the appreciation in the value of the diamond from its seed stage to its rough stage.

A portion of the gains or a service fee goes to the platform, with the balance distributed among all holders of the F-NFTs, based on the number of fractionalized assets held.

The prices of these F-NFTs are fairly calculated based on the cost of production, price of seeds and other related costs.

Investors can choose whether to cash out after the batch of diamonds is fully grown and polished or during the unpolished stage.

Those opting to sell their diamonds at the unpolished stage would be sold to an intermediary, who will process the rough stones into refined final products.

Besides lowering the barrier to entry for investors, these diamond-backed fractionalized NFTs could also attract traditional finance investors into the crypto space.

About Diamond Alpha

Diamond Alpha is the World’s 1st Fractional NFT Exchange for Precious Stones. By applying the Web 3.0 technologies, such as minting of NFTs using “FracTech”, Diamond Alpha aims to decentralize participation and access to high margin opportunities, particularly the precious stones industry.

For more information about Diamond Alpha, please visit https://www.diamondalpha.io/home

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