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19 August 2023


Cemil Şinasi Türün

Here I explain the idea of the tether of agriculture. The word ‘tether’ means a rope fastened to a fixed thing or fastening something. As a nautical term, it refers to a rope fastened to a buoy fixed on the seabed, used for mooring a boat.

In the crypto-currency terminology, Tether is the name of a better known token backed by an asset worth US$ 1. It is listed as USDT. USDT is not the only token anchored in US$ 1in the world. It has a competitor named USDC. In other words, there are two major actors in the market of tokens indexed to US$: USDT and USDC. Tether is the name of the older of these two companies, the one that issues USDT. They are called stablecoins, but in fact they are tokens. I mean both USDT and USDC are not coins functioning in their networks, but tokens functioning in blockchains operated by others. Both of them are tokens in ERC-20 format compatible with the Etherum network.

Who own them? What assets back them?
These two companies keep in large banks the financial assets they use to peg their tokens. They peg US$ 1 token per digital US$ 1 in banks; the fiscal report announced by USDT in the last quarter of the year shows the following breakdown of its assets in question:

• 75.85% in cash or cash equivalent negotiable instruments and escrow deposit accounts
• 12.55% in guaranteed loans
• 9.96% in bonds and commodities
• 1.64% in digital assets

Most of the negotiable instruments kept in the reserves of Tether are papers, bonds and commodities issued by businesses, governments or banks and are stored by respectable institutions. The digital assets kept in the reserves of Tether are Bitcoin and Ether.

On the other hand, USDC tokens are issued by a consortium named Centre formed by Circle and Coinbase Exchange. These tokens are pegged by US$ in a more transparent way and with a higher rate of cash.

• 99.8% in cash or cash equivalents including US$ deposits and short-term U.S. government bonds.
• 0.2% in negotiable instruments including share certificates.

The reserves of USDC are audited on monthly basis by Grant Thornton. This makes USDC one of the most transparent stable tokens in the market.

If Circle or Tether does not have a cash reserve that equals to the total value of the tokens it minted, it has the risk that its tokens may lose their equivalency, called ‘depegging’ in the crypto terminology, as opposed to pegging.

It is always asked who actually own these two huge stabilecoin businesses. It is obvious that they are not small, but the names of the large groups who own these businesses remain unknown. Total value of the USDT tokens in circulation is US$ 83 billion, while the value of USDC’s ERC-20 tokens in circulation is US$ 26 billion.

What are similarities of stablecoins like Cropto and Tether/USDC?
The basic reason of our claim that Cropto tokens are the Tether of agricultural products is that they are pegged in such physical products as wheat, barley and corn, so that they are tokens backed by such assets. Both types of tokens fall in the asset-backed token category.

Each Cropto token is minted i.e. issued against 1 kg wheat (CROW), 1 kg barley (CROB) or 1 kg corn (CROC) stored in contractual partner warehouses. Before minting them, relevant agricultural products are bought from reliable markets and blockchain tokens are minted in digital format in numbers corresponding to the said products, ensuring each token corresponds to 1 kg product.

The second similarity is that Cropto tokens are designed in accordance with the ERC-20 standard like USDT and USDC and can be tracked and monitored in all blockchain networks compatible with EVM. In the present Cropto tokens are traded in the decentralized exchange UniSwap, but it is planned to list them with some centralized commodity exchanges in the near future.

As to commodity, agricultural products are traded as commodities for thousands of years since the Sumerian age. In the Sumerian, Assyrian and Babylonian cities, such products as wheat, barley and corn were traded for precious metals and vice versa subject to a fixed tariff. For example, in the Sumerian cities a unit of wheat corresponding to 18 liters was considered equal to 1 shekel i.e. 12 grams of silver. (It is interesting to note that a wooden container having a volume of 18 liters is still used as a wheat weighing unit in the Turkish city of Sivas, its name is ‘gödük’).

In the present 1 kg wheat is sold at TL 6 or 7 depending on its quality. Considering its density is 0.8 kg/liter, 18 liters of wheat weighs 14.5 kg; considering that the price of silver is TL 20 per gram, the present wheat/silver index is approximately 2/4 of the index of the Sumerian age. The present price of 18 liters of wheat is TL 101, so that it corresponded to TL 240 in the Sumerian age. Of course, the value of silver then is not the same as its value today, but it gives us an idea.

History may repeat itself and we may begin to seek a monetary system based on agricultural commodities again. In fact, such inclination is already here: a group of countries named Global South is seeking an alternative to the US$ for trading of petroleum, natural gas and agricultural products. In other words, they totter the throne of US$ and in near future a commercial currency may appear to replace the US$. Now the BRICS countries work on such currency, they are expected to announce that currency on 22 August, rumor has it this currency will be indexed to gold or a basket of commodities.

The family of Cropto agricultural tokens may turn into a trading means or currency for not only people aiming to invest in agricultural products, but also countries for global trade.