Bitcoin (BTC) shouldered its way into the currency world promising users anonymity and the ability to operate outside the reach of central banks and other authorities. Other digital currencies with similar goals followed suit.
But there’s a new cryptocurrency created to address what some view as the shortcomings of currencies like bitcoin. Saga (SGA), which announced late last month it will launch in the fourth quarter of this year, may be one of the first cryptocurrencies that is not anonymous and aims for price stability.
But will there be demand for a coin that boasts the very safeguards eschewed by the early, anti-authority crypto crowd?
Is this play-by-the-rules currency what bitcoin creator Satoshi Nakamoto had in mind when he launched his revolutionary creation?
SGA tokens (not to be mistaken with SagaCoin (SAGA), another cryptocurrency) are backed by a fiat reserve currency held in regulated banking institutions. The price of SGA tokens is regulated by a sliding scale that adjusts the supply of coins according to demand, flattening those radical peaks and valleys on price charts that are familiar to anyone who has watched bitcoin and other popular cryptos over the last year.
Owners of SGA coins are required to abide by Know Your Customer regulations and allow law enforcement authorities to check their identities should the issue of money-laundering or other types of criminality come up. This sets it apart from cryptos such as bitcoin that allow owners to remain anonymous.
The Saga token operation is backed by an advisory board of world-class economists, including Jacob Frenkel, chairman of JPMorgan Chase International; Stanford professor and Nobel laureate for economics Myron Scholes; and Dan Galai, the developer of the VIX volatility measuring technique. Leo Melamed, chairman emeritus of the CME Group, also sits on the board.
Is this play-by-the-rules currency conceived of as “complementary to the financial system” what bitcoin creator Satoshi Nakamoto had in mind when he launched his revolutionary creation? Clearly not.
Who Needs It?
Perhaps more important, however, from a practical point of view: Is there a need for this kind of currency? Will investors bite? Some experts think not.
“Saga ignores the fact that speculative investors are attracted to cryptos for their higher volatility and benefits of secrecy,” says Boston University finance professor Mark T. Williams. “Saga is a coin that will attract few speculators.”
Others see a possible value for the banking community in having a digital currency established, like the dollar, as a standard for currency exchange.
Not Just a Currency
“The idea would be to have this cryptocurrency available — for which I’m sure they [the banks] would charge a fee — that’s compatible with the blockchain technologies,” says economist Gail Fosler, former chair of The Conference Board and current head of her own strategic advisory service.
“There we’d have not just a currency but a numeraire [a measure of value],” Fosler says.
Saga was developed by the Saga Foundation, a year-old Swiss nonprofit. The idea was to introduce a digital means of exchange that had price stability, was not anonymous and wasn’t just a tool of speculation. Most cryptocurrencies are too volatile to be widely accepted as useful in a payment system.
Instead of using an ICO for funding, the project went to venture capitalists and hedge funds to raise $30 million. Investors include Mangrove Capital Partners, Lightspeed, Singulariteam and iCapital.
Ido Sadeh Man, the founder of the Saga Foundation, spoke to the Financial Times about the arduous drive to develop trust in the Saga currency. “We don’t believe trust can be abruptly amassed,” he said, explaining Saga’s strategy in backing its tokens with fiat currencies.
The Financial Times’ Dan McCrum calls Saga the “academic’s cryptocurrency” and thinks it a waste of time.
“This is not a reason to use Saga,” McCrum wrote. “Businesses can just transact with real money, or banks.”