Gold on the Blockchain: The Ins and Outs of Quintric
This article was originally published in the Newsroom at www.UPMA.org (view original)
Let's break down the mechanisms which will fuel the success of the new Gold Standard.
Ever since the meteoric rise of Bitcoin, it seemed that anyone with a few thousand dollars and a heart of gold (pun intended) could launch a successful crypto start-up. However, with the vast majority of ICO's drowning in the competition and never achieving substantial market value, this is clearly not always the case. Even among the victors, it is widely accepted that most tokens have no objective, tangible value. The concept of an asset-based blockchain is a logical step away from the notorious volatility which stems from this faith-based valuation. From there, it’s simply a race to see who can provide the most stable asset to lend value to their coins. Enter the 50-odd cryptocurrencies which claim to have precious metals like gold, silver or platinum backing their tokens. You can read more about those programs here: but suffice to say that they all lack several key features, in which Quintic has specialized.
As Quintric’s Pre-sale Promotion heats up in anticipation of the public launch on July 4th, one question seems to keep coming up: Why has no one else done this before? Indeed, there are plenty of competitors in the crypto space who have similar business models;
Step 1: Host an ICO
Step 2: Buy or mine gold to back up the tokens
Step 3: Profit
...but Quintric is unique among the competition. Their tokens are the only cryptocurrency which represents legal money, issued by a national government. The Quint and QuintS tokens are “deeds to legal tender” much like the US banknotes of yore. They are therefore fundamentally different from every other cryptocurrency in existence. While most other developers must host an ICO to raise capital for their start-up, it would be more accurate to call Quintric’s Pre-Sale process an LTO, or “Legal Tender Offering.”
Now let’s do some math.
Quint tokens are currently priced based on US-minted Proof Gold Coins. The retail rate for these coins is set by the US Mint: at present, a Proof Gold Buffalo Coin is priced at $1710 (Fiat dollars) and has a face value of $50 (Gold dollars). When you divide an ounce of gold into 1000 parts, you get $1.71 in paper, or 5 gold cents (one Quint). Each token is simply a convenient denomination of American Gold Dollars, which is both small enough to have utility and liquid enough (by its crypto nature) to actually be spendable. By contrast, physical gold coins are extremely inconvenient to circulate, due to the inability to make change and the fact that most commerce occurs digitally, over long distances.
In addition, Quint tokens are not “mined” like a traditional crypto. Rather, they are created in an Escrow service, using traditional payment methods such as credit cards, fiat cash, checks and bank wires. Conversion of other cryptocurrency into Quint and QuintS is being developed at the time of writing. Once a token is created, Quintric either moves metals from in-house surplus or immediately procures new gold or silver to pair with said token. The company is then committed to maintaining 100% reserve ratios on all coins in program - that is, there will never be more Quint in existence than there is gold in the vault.
Here’s where a few problems arise. If users are paying $1710 per 1000 tokens, and the gold itself costs $1710 per oz, where is the profit? Furthermore, there is usually a storage cost with any asset, especially precious metals. Many repositories have annual fees approaching 1% of the total holdings, meaning the value of your metals can shrink by a significant fraction over several decades. These are prohibitive expenses for anyone looking to vault gold and silver, let alone a crypto-savvy investor simply looking for a new portfolio piece. So, if Quintric’s token premiums are on par with the value of gold in the vault, where does the surplus capital come from to cover these and other operational expenses?
Many other gold-based blockchain platforms charge transaction fees whenever their coins circulate. This can work, assuming they have enough transaction volume to guarantee profitability. Considering how openly speculative most cryptos are, it is easy to imagine such a fragile balance being upset by even the slightest dip in market activity. Quintric will indeed have transaction fees, but that revenue is set aside for another program, which is not so vital to core operations. Some ICO’s promise that their secondary investments will cover vaulting costs, while most make no mention of this problem at all. The nearest sustainable solution can be found with pre-existing repositories who simply tokenize their holdings: presumably, their budgets are flexible enough to absorb any losses if the program goes sour. We suspect that this is the Great Filter of gold-backed cryptos, especially when users have been promised legal tender status for each and every token.
The solution is simple and legally ingenious: Quint tokens are valued at the price of Proof Coins, but vaulting and redemption is done with Standard Coins. Both are legally considered cash, with equal face value and gold content, issued by the Treasury. Proofs typically cost several hundred dollars more (because of their higher numismatic value), and the resulting profit margin provides more than enough room to cover every cost associated with the program. It also means that Quintric can honor its pledge to maintain 100% reserve ratios of gold-to-tokens without compromising the value of either.
Silver QuintS tokens work in much the same way, in the sense that vaulting is pre-paid. However, they are not pegged to the value of Silver Proof coinage like the Quint are. If this were the case, users would be paying over triple silver spot price for QuintS. Instead, the company soft-pegs the silver token to the gold token, meaning that 1/20th oz of Quintric Silver is essentially equal to 1/1000th oz of Quintric Gold. With this method, Quintric is artificially establishing a 50:1 ratio between gold and silver dollars (conveniently mirroring the $50-$1 face values). This stands in contrast to the current free market ratio of gold and silver, which sits around 80:1. While this marriage of pricing is not a permanent commitment, it makes QuintS tokens a more attractive option for silver investors - no one else will promise indefinite, free vaulting for silver, plus blockchain-based security and liquidity.
The actual funds which cover vaulting costs are built into the premiums on each token. After this one-time, up-front cost when a Quint is created, it will never incur another storage expense for its user. Even if your metal sits in the Quintric vaults for 1,000 years, your descendants will still have that same volume to work with (fingers crossed for continued appreciation).
Storage and insurance of the physical metals is financed by a diversified endowment fund. This fund, known as QuinTrust, is structured in such a way as to provide annual returns which cover vaulting expenses. Quintirc partners the vault, and the operational costs are therefore very manageable. Additional revenue sources are also available, which means that unless the QuinTrust endowment is horribly misappropriated, the company will never come up short on vaulting. Even in the event of a national recession, not only can Quintric comfortably float on these incomes for a very long time, but the Board of Directors is committed to operating at a loss rather than retract the promise of demanding zero storage fees from account holders.
In the end, both Quint and QuintS tokens will always retain higher value relative to any other form of gold or silver in the world, because once that vaulting has been prepaid, it will never need to be paid again - plus you can actually circulate the metals as a practical currency. Coin dealers everywhere should be flocking to offer redemption for Quint into gold, because they will recognize the higher value that the crypto-version possesses. Merchants and retailers will be excited to receive gold and silver as payment for services previously exchangeable only for Fiat money. Finally, because Quint tokens are not a security, they can be treated like dollar bills by anyone who wishes to exchange them for goods and services. This isn't simply another metal crypto destined to drown on the DEX: this is a stable, reliable monetary standard that can only benefit its adopters, especially in the extreme long-term.