True USD (TUSD)
4 min reading
Stablecoins keep increasing in the market. Kiss the fear of volatility goodbye. All you need to know about TrueUSD is in this article.
True USD (TUSD)
In the crypto space, price instability is a major factor that hinders many from adopting cryptocurrency as the ultimate currency of exchange. Market volatility makes the use of these currencies for day-to-day activities very difficult. People always have a need to either fulfill a transaction, make an international transfer, or, better still, purchase an asset. Even though transactions using cryptocurrency are quite fast and less costly, the fluctuation in prices does not lure many to engage in the crypto business. However, because this has become an issue, developers have sought a way to salvage the situation by creating stablecoins. There are some stablecoins already in circulation. One of them is the True USD (TUSD). This stablecoin is the subject of this article.
Before delving into what TUSD is all about, it will be good that we summarize what stablecoins are. Stablecoins are cryptocurrencies that always have a stable price based on an external asset. Introducing stablecoins was because there was a need to curb volatility with crypto prices. Stablecoins enable traders to have access to the benefits of the blockchains without risking price swings. Another advantage of stablecoins is that they provide assurance to traders and other investors who intend to hold their profit.
History of True USD (TUSD)
This stablecoin has existed since 2018 and it was issued by TrustToken, an exchange platform in San Francisco that primarily creates asset-backed tokens that can easily be traded in the entire world. The reason for creating this token is to provide a more reliable market condition by tokenizing assets like movies and limited businesses. This token is, however, the first of its kind in the TrustToken sphere. TrustToken found this token alongside its co-founder, who is the CEO of the said exchange platform, Rafael Cosman. In order to be ahead of the volatile market, every month they audit the stablecoins making them trustworthy.
What is Trust Token?
TrustToken is a platform for creating asset-backed tokens that you can easily buy and sell around the world. For example, gold tokens for gold or dollar tokens for dollars. In the TrueUSD system, US dollars are held in the bank accounts of several trust companies that have signed escrow agreements, rather than in a bank account controlled by a single company.
According to TrueUSD, the contents of these bank accounts are published daily and audited monthly.
This method of storing the USD ensures that the user can have greater confidence in TrueUSD because the collateralized assets are not centralized in one entity, but rather spread across many trust partners.
How does TrueUSD work?
The major factor that causes the TrustToken asset to function properly is the existence of third-party escrow accounts. Before purchasing TUSD, the trader applies the Know Your Customer (KYC) and Anti Money Laundering (AML) procedure. Remember, we mentioned that TrustToken created this token. Although it is TrustToken’s invention, this exchange does not issue these tokens, neither does any team member do. The token operates using smart contracts. The exchange ensures a 1:1 ratio between the money in the escrow accounts and the token in circulation. That is, for every $1 invested, a token is minted and for every $1 that is issued, a token is burned.
For a user to send or exchange using TUSD, it means they have completed the procedures necessary for eligibility. As such, they can send funds directly to the TrueUSD’s trust partner along with an Ethereum Wallet address. The escrow company verifies the funds, and the API interacts with TrueUSD’s smart contract, which issues tokens equivalent to the amount received in USD, to the provided wallet. As soon as the user receives the token in their wallet, they can use it for anything they desire. If the user needs fiat currency instead, they will send the token to the smart contract’s address that will notify the company with the escrow account and the equivalent credited into the user’s fiat account.
In summary, TUSD was created to help traders with price volatility. It comes with legal protection, where the company publishes legal attestations alongside strong legal protection provided by escrow accounts. Secondly, they set the TrueUSD system in a way that the users can exchange USD directly with escrow accounts without wiring through the token’s network. It implements a 1:1 ratio during exchanges. However, it is not fully decentralized because of the standards TrustTokens provides.