Investing beyond Bitcoin- Digital Reserve Currency (DRC)
Late buyer’s remorse
“I wish I bought bitcoin 5 years ago! ”- that’s the sentence I get to hear a lot these days. Sure enough, from todays’ perspective it’s seems like a missed opportunity. But from perspective of 2015, such decision would have looked very differently. Recently I came across this compilation which shows how sentiments around Bitcoin changed in the last years:
Here are my takeaways from that picture:
· New technology and new concepts always go through curve of adaptation, surely enough many will not prove valuable and cease to exist, but by the time big players start to agree that this “next big thing” you probably missed early-entrance opportunity.
· Blockchain is much more than Bitcoin and given its infancy there are still interesting opportunities for small-time investors that don’t have a purchasing power of Elon Musk to see some good returns on investment.
In a search for the new opportunities
Today I want to write about one of the potentially interesting opportunity, namely Digital Reserve Currency. Around January 2021 during the DTL Talent Program I was working an assignment to decide on criteria on which a blockchain start-up can be assessed, and then select a few companies to rank them against these criteria. I’ve modified that assignment slightly and decided to look at the new tokens: ideally those that are not listed on exchanges yet but can be bought by Uniswap. Ideally those whose price is very low and so is market cap, but the project they steam from has a potential. Below you can see my 1st shoot at that task. I have reviewed some literature and decided to evaluate some new projects based on following criteria:
- Enterprise characteristics (do people behind the project seem legit?)
- Financial characteristics
- Service/product characteristic
- Market characteristic
My hope was that through disciplined evaluation I would avoid sinking my money into scam project, after all there so many of them out there. Soon I realized that I am missing a good scoring mechanism and that doing the full due-diligence is a very time-consuming process so you will see that I quickly gave up on full scoring and decided to at least look for brief summary in each of categories.
After completing the exercise, I’ve decided to buy some Skey and DRC tokens. Now, a bit more than 2 months after the purchase, I noticed that the value of DRC has almost quadrupled (while Skey noted a slight increase) so through this article I’ll try to explain what is DRC? What can we expect from this project in the next months?
Digital Reserve Currency- the use case
DRC is a project developed on the Ethereum network- it was launched in early November 2020 with a fixed supply of 1,000,000,000 tokens. The supply of tokens is fixed and all of them have been released to Uniswap at once.
The abstract from the whitepaper provides motivation of the project:
“COVID-19 pandemic has caused a substantial disruption of the global economy. To preserve its stability, central banks across the globe have significantly eased monetary policy by cutting policy rates and provided enormous liquidity to the market. However, fiscal and monetary policies implemented because of the economic crisis have exposed serious vulnerabilities in the current financial system. Historically, the increase in the money supply causes inflation and reduces purchasing power. During the economic recession, people tend to lose their trust in a centralized financial system and hedge inflation risks by investing in “store of value” assets that are expected to retain or increase their value over time.”
Let’s have a look at this use case:
Data from the Fed shows that a broad measure of the stock of dollars, known as M2, rose from $15.34 trillion at the start of the year 2020 to $17.89 trillion in May (I see on the webpage that the way of calculating the measure is adjusted as of May 2020, hence the selection of comparison points). M2 includes physical notes and coins, banks reserves held at the Fed, accounts at banks, and money market mutual funds.
According to some experts, the huge injection of money by the Fed will cause hyperinflation at the end of the day. Others argue that this is not going to be the case: “In normal times, if you gave every citizen $1,000 they would go out and buy more luxuries — this could be inflationary. But, in this circumstance, if you gave households $1,000 there would be no surge in demand — many households will lose much more than $1,000. Other households with good income will probably save extra income for now. “ (read more here)
Looking at the inflation rates one does not see dramatic spike at least in USA inflation, however the expectations of the public are painting a different picture than official inflation data. The University of Michigan’s survey of consumers finds inflation expectations in recent years hovering at about 2½ percent — well above today’s actual inflation rate, and also higher than inflation expectations derived from markets or economic forecasters.
Consequently, if public expect prices to rise and the purchasing power of their money to drop, then the use case described by the DRC whitepaper may be very relevant for those seeking to preserve value of their assets.
Digital Reserve Currency- the token
As mentioned previously, a limited supply of 1Billion tokens has been released into market. At the day of writing the article DRC token trades for equivalent of $0.0122 while is started in late October 2020 at $0.0011 which is approximately 10-fold increase in the period of 5 months.
What is the token useful for? As mentioned in the whitepaper abstract, the goal of the project is to provide digital store of value. This has been deployed in a form of, for the time being, 2 vaults that contain different mixture of USD coin, Gold, Ether and Bitcoin. One of the vaults is focused on Capital appreciation while other one on capital preservation. More vaults are to be developed in the due course:
DRC holders can either hold DRC in their wallet and let the market dictate its price or deposit it into the Digital Reserve and have a wider exposure to a set of traditional SoV assets expected to appreciate over time at a slower rate. If the market experiences a downturn, a user can deposit DRC into the Digital Reserve and hedge the overall market conditions.
Interestingly enough, in their FAQ DRC project team reflects upon the following question: Why is DRC a potential store of value?
“Currently, DRC does not have all necessary SoV attributes and cannot be compared to gold or Bitcoin because of the low level of its global adoption and short historical performance. DRC is a long-term monetary experiment. A stable growth and global recognition are needed for DRC to become a true store of value.”
The increase of coin value in the last weeks indicates increased interest and adaptation. This may be somewhat related to the announcement of collaboration with Quickswap and the incentives given to the DRC holders to become Liquidity Pool providers:
DRC announcement 11.03 on collaboration with Quickswap
The Twitter followers community is not impressive yet, with slightly above 2K. I had a look into their voting site where token holders can vote on projects/initiatives that DRC team is considering and noticed very few votes at the moment, BUT it is still a very new project so that should not come as a surprise. The question is: will it attract more fuzz and attention? I suppose only time will tell but the roadmap for 2021 looks interesting. The fact that DRC smart contract were already audited by blockchain development firm and no major issues were found combined with the auditing plans for Q2 give me perception of project that is well managed. I will definitely follow its developments in the course of next months!
What do you think of DRC and its potential?
*This article is not intended as as investment advice, merely opinion. Digital currencies and other tokens are high-risk assets.