CanaGold

continuing this exciting series on crypto and pegged tokens in Canada. in my last post I sketched an outline for CanaCoin, a Canadian dollar (CDN) crypto pegged token.

it occurred to me since thinking about currencies and pegged tokens. how about the "ultimate currency", the one still standing after all these centuries, gold. unlike CDN, which may be more niche, gold or a "gold crypto coin" is likely more developed in the crypto thought space. gold, like US money (USD), and crude oil is of course global. everyone knows about it and has to care about it. search around and some such products may well already exist.

gold is the gold standard, heh. now gold is a bit different than USD or CDN. it is typically valued not in its own unit. so 1 USD = 1 USD, and 1 CDN = 1 CDN (kind of a tautology, but I hope you get the point). gold is generally expressed as its value in USD, as opposed to its value in, well gold. 

then the Canadian or US dollar is backed by gold. again this is a bit of the specialness, the uniqueness, the mystique about gold. typically people don't talk about using gold to buy something, or trading say land or valuable hockey cards for gold.

so CanaGold then is a pegged crypto token valued at 1 oz of gold.

how to get the gold to back CanaGold

unlike CanaCoin, users probably wouldn't be expected to send gold, or acceptable gold certificates. with CanaCoin you send 50 CDN and get 50 CanaCoin tokens. CanaGold I'd think the user would have to send enough CDN to purchase on market an ounce of gold to back the minting of a CanaGold coin. see the CanaCoin post for kyc, auditing and all those fun administrative details.

at TD Wealth Precious Metals I saw a link go by where they can get gold for clients. They offer both certificates, as well as secure storage, and the real physical bullion. CanaGold would want the certificates. Setting up and operating a secure facility to manage physical gold like Barclays or TD Wealth would be cost prohibitive. CanaGold is looking like a premium high end service but managing physical gold would be too hard and costly. 

I'm not personally a client of TD Wealth at this time. Just showing it as an example where it should be possible to acquire gold. A CanaGold authority would have to get a real gold provider for bona fide gold certificates. One option I guess would be for the client provides the gold certificate for the CanaGold, instead of CDN to purchase gold. That sounds hard and I'm not sure CanaGold authority would want that, to be receiving gold certs.

the cashout issue

So redemption is a bit trickier with gold. A $1 Canadian Tire money issued in 1995 is still worth $1 today at Canadian Tire. Same as a Canadian $1 loonie minted in 1999 still buys $1 of candy at a corner store today. Maybe not as much as you could have purchased in 1999, but still $1 worth. 

The token redemption would be onto gold, as that is what the token is pegged to. One option would be to send the gold certificate as the redemption. Client now owns gold. Another option would be the gold certificate is sold to some kind of gold market provider, the same one the gold was purchased from in the first place, and proceeds sent to the redemption client. 

In a way sell at market makes sense as it as CDN into gold at the creation of the CanaCoin, then gold to CDN on the way out. What must be avoided is CanaGold assuming any kind of risk or exposure to changes in the price of 1 oz of gold in CDN. All risk for the price of gold in CDN going up or down has to be assumed by the client for better or for worse. 

So if client spends $1000 CDN for 1 CanaGold token, price of gold declines to $900. at cashout, client loses $100. So the peg is to gold, not to CDN. I guess if the client wants a CDN peg then use CanaCoin. For a USD pegged token use some USD product. So just saying, it's a bit different than a peg to currency.

again like CanaCoin, the product CanaGold does not exist at the time of this writing. this crypto series has been an interesting exercise for me to organize some ideas around it. I've covered a few concepts and some of the challenges around bridging between the digital crypto world and the more conventional real world wealth.

CanaCoin

Follow on from my last post about pegged crypto tokens. I was thinking about pegged crypto tokens and the Canadian dollar (CDN)

Offhand I can't name any or any prominent CDN tokens. I thought it might be fun or interesting to think about how to define a CDN pegged token. That is, a crypto coin whose value is pegged to the Canadian dollar. I came up with a name anyway, CanaCoin.

So to be pegged, each CanaCoin is backed by one real-world Canadian dollar. I'm thinking some kind of database of guid or whatever, one for each CanCoin. Each CanaCoin may have some kind of digital signature or something establishing who owns it. Technical details are still sketchy. I would say as it stands it would be based on trusted and centralized authority, the CanaCoin issuer. So not anything as sophisticated as trustless or decentralized like Bitcoin.

A user in Canada could send an Interac e-transfer of the amount of CanaCoin to purchase. So would be using Interac to serve as the know your customer (KYC) requirement. CanaCoin authority would still need to find some kind of bank and financial institution with Canadian money to hold the backing money side.

So Interac e-transfer $50 and be issued 50 CanaCoin tokens. On the redemption side redeem 50 CanaCoin and get back Interac e-transfer $50. The CanaCoin authority accepts CanaCoin at $1 CDN.

While the CanaCoin tokens are issued. How to manage the backing money. Something like 50% in plain bank account (immediate access to settle cashouts), 25% maybe in money market (can be accessed in about one week), 25% maybe in max 3 month Canada savings bonds, Canada government or government backed. (can be accessed in max 3 months). So in event of a mass cashout, then make it clear that in an extreme situation some fraction cashouts may take up to three months. The money behind the tokens is safe, it's there. These accounts should generate a bit of interest which could help offset the operating costs of running CanaCoin. Other funding options might include say a modest annual custodial fee on the coins. Would have to think about that. The idea would be a minimal bare bones, part-time operation.

To keep the money safe, could bring in regular proper auditors. They would verify that the coins in the database are backed 1:1 by the money in the accounts. Perhaps verify that the liquidity of 50% immediate is adhered to, and that the money is in what is considered effectively minimum/no risk holdings.

I haven't quite thought through how CanaCoins could be listed on crypto exchanges, or how the digital signatures of ownership might change hands after purchase, without having to redeem the coins at the CanaCoin authority. I mentioned KYC above, along with third party auditing the reserves, which indicates I'm at least aware of the concept of regulatory.

Now CanaCoin doesn't exist at the time of this writing. This is all just conjecture and speculation at this point, a thought exercise.

pegged crypto tokens in Canada

 Lately with FTX and everything I got thinking about crpyto a bit more.

One subject of interest was pegged coins. Where some crpyto object value is kept in sync with some other currency such as the US dollar (USD). With Canada and pegged tokens there was an interesting tweet

Canada’s original pegged token #Bitcoin pic.twitter.com/LJZVJkIdTO

— argc (@tookalito) January 31, 2023

ah yes Canadian Tire money. The original pegged token. A $1 of Canadian Tire money earned in 1990 is still worth $1 today toward merchandise purchased at Canadian Tire.

I remember back when there were newspapers that people read. There was something of a market in Canadian tire money. Around 75 cents on the dollar as I recall. So someone would post a classified ad offering to sell or buy $100 of Canadian Tire money for $75.

How does this relate to crypto today. I wasn't sure what the point was of pegged tokens in crypto. After all if I wanted to own USD I can just get USD at any bank. Why use a crypto representation of USD. 

Then it occurred to me that the tokens can act as a kind of bridge between conventional real world money and the new digital crypto currencies. So you can "convert" your crypto coins into or out of conventional money without necessarily selling them and having to "leave" crypto. There becomes a path where I can keep some of my money in crypto, in a way that holds its value relative to the real reference currency, the USD say. avoiding the volatility of Bitcoin

Plus with the stable pegged token it gives a way to value other crypto coins or assets such as Bitcoin, dogecoin, NFT, etc. against a digital reference currency with predictable value (at least in terms of its value in USD). thinking about it a bit more, it's almost a medium of exchange say to sell litecoin, and buy bitcoin for example.

This post has run a bit longer than I expected. I was going to get into CanaCoin and CanaGold but that will now be in later posts in this series.