Stablecoin giant Tether has announced the launch of Alloy, its very own synthetic dollar. This new asset, backed by Tether Gold, is meant to bring stability to the digital economy by merging the reliability of gold with a stable unit of account.
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Alloy by Tether introduces a new class of digital assets called tethered assets. These assets are designed to track the price of reference assets, maintaining consistent value through strategies like over-collateralization with liquid assets and secondary market liquidity pools. According to Tether, this ensures stability and value parity between the reference asset and its digital counterpart.
How Tether’s Alloy works
The first token in Tether’s lineup is aUSD₮, a digital currency that mirrors the value of one US dollar. What sets aUSD₮ apart is its over-collateralization by Tether Gold (XAU₮), meaning it is backed by real physical gold stored securely in Switzerland. Users can create aUSD₮ tokens by using Tether Gold as collateral. This allows users to engage in digital transactions, payments, and remittances with a currency as familiar as the US dollar without selling their gold holdings.
The system operates on the Ethereum Mainnet, where users can mint aUSD₮ by depositing Tether Gold as collateral. Ethereum-compatible smart contracts manage this process, ensuring transparency and security. These contracts track all collateral and minted tokens, using Price Oracles to constantly evaluate the mint-to-value (MTV) ratio. This setup guarantees that the value of aUSD₮ remains stable and reliable.
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Tether states that Alloy is an open platform, allowing for the creation of various tethered assets with different backing mechanisms. This includes potential yield-bearing products, offering a modern approach to asset management for institutions. Moon Gold NA, S.A. de C.V. and Moon Gold El Salvador, S.A. de C.V., authorized by the CNAD in El Salvador, manage the issuance and oversight of Alloy by Tether, catering to all customer needs and regulatory requirements.
How tethered assets work
Tethered assets like aUSD₮ are designed to track the value of a specific reference asset, such as the US Dollar. They achieve this through strategies including over-collateralization and support from secondary market liquidity pools. These methods ensure that the value of the tethered asset remains steady and close to that of its reference asset.
Over-collateralization is a crucial safety feature in the world of tethered assets. It works by locking up more value than the amount of digital currency being created. For example, users must deposit a larger value of collateral, like Tether Gold, than the value of the digital currency they wish to create. This extra collateral acts as a safety net, absorbing potential fluctuations in the value of the collateral asset.
Paolo Ardoino, CEO of Tether, expressed his enthusiasm for this new venture, saying, “We are thrilled to announce the launch of Alloy by Tether, introducing a class of digital assets backed by gold and tethered to a reference fiat currency. While the stabilization mechanism is different compared to traditional options like USD₮, this innovative solution marks an exciting milestone, and we eagerly anticipate how it will interact with the rest of the market.”
Cryptopolitan reporting by Jai Hamid
