Cryptocurrencies: Tokens backed by real assets
Tokens backed by real assets, called cryptoassets or cryptoassets, are a class of cryptocurrency tokens that are backed by a tangible underlying asset. Some examples may include stablecoins backed by fiat money, tokens backed by commodities, tokenized assets, or even some types of cryptocurrency that are backed by other cryptocurrencies.
The idea behind tokens backed by real assets is to provide investors with a more stable and secure way to invest in the crypto space, while also providing more transparency and liquidity to the underlying assets.
Traditionally, all the assets that were part of the crypto space have been called cryptoassets. However, recently, experts and influencers have promoted these terms to refer only to cryptocurrencies that are backed by other assets.
What cryptocurrencies are backed?
There are several types of cryptocurrencies that are backed by real assets. Some examples are:
Stablecoins or Stable Coins
Stablecoins are cryptocurrencies that are backed by an underlying asset, such as the US dollar or the euro, with the aim of providing stability in terms of value and preventing the volatility associated with other cryptocurrencies. Holders of stablecoins can be confident that the value of their coins will not fluctuate as much as unbacked cryptocurrencies.
There are different types of stable coins, but the most commonly used ones, such as USDT, USDC, or BUSD, are coins that maintain a parity with the dollar and have reserves composed of fiat money or liquid assets (such as Treasury Bills) whose value is equal to or greater than their market capitalization.
Another example can be USDD, the stablecoin of the Tron blockchain, which instead of being backed by fiat assets, is backed by other cryptocurrencies such as TRX (the native token of the Tron network), Bitcoin, and other stablecoins like USDT and USDC.
Learn more about stablecoins or stable coins.
Commodities
There are some tokens that are backed by tangible commodities, such as oil or gold. This can provide a safer way to invest in commodity prices, as the value of the token is backed by the underlying commodity's value.
An example is PAX Gold, which is backed by physical gold.
Tokenized Assets
Tokenized assets are physical assets, such as properties or artwork, that are represented in the form of digital tokens. These tokens can be traded on cryptocurrency platforms and are backed by the real tangible underlying asset.
Tokenizing an asset allows for greater liquidity and accessibility for investors, as they can buy and sell fractions of an asset instead of having to acquire it in its entirety. Additionally, by utilizing blockchain technology, transparency and security are improved in the ownership and tracking of these assets.
There are several real estate projects that tokenize their assets to receive funding. In return, holders of these tokens receive monthly dividends from the rent and sale of these assets. An example of such projects is Reental.
Cryptocurrencies
There are some cryptocurrencies that are backed by other cryptocurrencies. This can provide a safer way to invest in other cryptocurrencies, as the value of the token is backed by the value of the underlying cryptocurrency.
The most common use of this type of cryptocurrencies is in cryptocurrency bridges. These protocols allow locking a token in one blockchain (for example BTC in the Bitcoin network) to issue them in another (for example WBTC in the Ethereum network) and thus access the DeFi opportunities offered by the new blockchain.
Many people consider these tokens as synthetic tokens, but they are actually cryptoassets: cryptocurrencies (the issued ones) backed by other cryptocurrencies (the locked ones).
In summary, cryptoassets or tokens backed by real assets provide a more stable and secure way to invest in the crypto space, while providing more transparency and liquidity to the underlying assets. However, it is important to note that, like any investment, tokens backed by real assets also carry risks and it is important to research and understand any token before investing in it.
This article is part of our guide on bitcoin and cryptocurrencies. Specifically, it is part of the guide on types of cryptocurrencies. Find more related articles in the following list: