New cryptocurrency ‘stablecoin’ Reserve, has completed its first round of funding, generating $5 million investments from the likes of San-Francisco based cryptocurrency exchange Coinbase and PayPal co-founder and venture capitalist Peter Thiel.
Reserve’s co-founder Nevin Freeman chose to seek private funding through a seed round to avoid the publicity and exposure of an ICO. In total, over 40 investors and firms have helped fund the project.
Reserve, which will compete with the likes of Tether – which recently entered the top ten cryptocurrencies by market cap according to CoinMarketCap data – TrueUSD, and other stable coins, is also designed to be 1:1 to the value of USD.
What’s unique about Reserve, is that it is not backed by USD itself like Tether is, and has recently confirmed via a third-party review. Instead, Reserve locks up “other cryptoassets in a smart contract in order to provide backing to the Reserve token and stabilize its price.” The backing consists of a combination of Reserve shares, and external crypto assets.
On the positive side, crypto-backing introduces user-verifiable transparency to see that each Reserve is indeed backed the way the firm says they are. Trust and transparency continue to be an issue that persists with Tether, despite their best efforts to clear their name and shake concerns. It also allows Reserve to be decentralized. Freeman said:
“We think that for a cryptocurrency to be truly censorship-resistant in the long term, it has to be decentralized.”
The risk here is that because the crypto-assets backing Reserve are volatile, the stablecoin will only be “relatively stable,” and requires the firm to keep as much as two to three times the amount of crypto in order to properly collateralize.
Freeman addressed concerns in a statement:
“There is still a tail-risk that in a black swan event these assets could lose nearly all of their value, and that’s why we aim to create a diversified pool through securitized assets.”
Reserve has not yet released the full technical details about their new stablecoin cryptocurrency, but more details are expected in the near future before Reserve rolls out.