A New Cryptocurrency Project that Could Change Everything
Venture capital money has been flowing into fintech and artificial intelligence in 2018, but cryptocurrencies have been a different story. Investors are keen to back projects dealing with their underlying technologies, like blockchain, but less enthused to hitch their wagon to the inherent volatility of crypto in a still murky regulatory climate.
Now a new kind of cryptocurrency project has emerged – one that ties its price to reserve currencies to mitigate wild price fluctuations. They are called stablecoins, and venture capital kings Andreessen Horowitz believes they have significant potential.
Andreessen Horowitz (a16z) has explored crypto in the past, backing CryptoKitties and OpenBazaar in two separate transactions. Now they have invested (or, in the company’s words, made a “strategic purchase” of) $15 million in Maker, a stablecoin network. That commitment to the MakerDAO project “will offer a16z the rights to govern MakerDAO and the Dai Credit System as it becomes the first decentralized autonomous stablecoin organization,” according to a report from CCN.
The Maker system runs via “a set of autonomous smart contracts…which means that anyone with an internet connection and collateral can create Dai [a decentralized stablecoin] without the need for trusted intermediaries,” said a16z in a statement announcing the deal. “To ensure the system remains solvent, a network of market makers is incentivized to liquidate loans that risk becoming undercollateralized, thereby removing excess Dai from circulation and keeping the balance of Dai to collateral in check.”
This means Dai will always be worth $1, regardless of other cryptocurrency prices. While Dai is currently backed by ether which, like most cryptocurrencies this year, has seen huge drops in price, MakerDAO “plans to introduce a diverse basket of collateral types, which would include tokenized equities and fiat-backed stablecoins” to eliminate reliance on a single type of cryptocurrency.
An additional CCN report indicates that a16z views the investment as a way to receive a “consistent yield return” from the network “due to the unique structure of the Maker blockchain network.” They anticipate an additional revenue stream from price increases with the Maker token “affected by the buyback program of Maker.”
To Katie Haun, a general partner at a16z, “the future economy [will] belong to decentralized stablecoins.” Their ability to mitigate the inefficiencies that plague traditional crypto will, in her opinion, not only increase adoption rates but also be more useful for long-term loans and other transactions. Can stablecoins make good on their promise? Andreessen Horowitz is betting yes.
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Financial analyst and market blogger with expertise in equity research, fundamental analysis, and macroeconomic trends. I regularly publish coverage on individual stocks, ETFs, and sector developments — combining rigorous financial analysis with clear, engaging writing for a broad investment audience.
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