Our guest for this podcast is Ranjeet Sodhi, Co-Founder and CEO of Vault, a USD-pegged stablecoin backed by and redeemable for LBMA gold and USD.
This interview is <25 minutes long, feel free to click play and listen to it now, subscribe to our podcast here to listen later, watch it on YouTube, or simply go ahead and read the edit below. Please enjoy and let us know what you think!
SR: What got you into crypto, and what inspired you to create a stablecoin? RS: I got into crypto purely as an investor but was late to that party because living in NYC the only onramp to crypto was Coinbase and moving large amounts of money quickly to take advantage of the market was frustrating. The idea for Vault came around the Bitcoin bubble in January 2018, because Tether may be a very usable item as a short-term trading stop, but parking funds temporarily for half a day or a day is too risky for institutional investors and long-term holders. Why would a whale or institutional investor park tens or hundreds of millions of dollars on a coin with massive accountability issues like Tether? Being from Indian origin with family in the gold business, we explored avenues around gold and crypto. Indians are the largest retail gold purchasers and is one of the largest consumers of gold as a country. People buying crypto — for philosophical reasons or to be outside the banking system, are also the people buying gold; there is a huge overlap.
SR: Interesting, I think Tether’s risk of implosion has gotten many stablecoins to take off this year. Can you share some of your research on the upstart costs to create and manage these gold-backed assets? RS: We at Vault are extremely fortunate to be partnered with SunValley Investments, our primary investors and one of the largest players in the gold-industry. It’s a private equity firm vertically integrated in gold holdings, from mines to trading and operations all throughout South America. This partnership allows Vault to buy Gold at bid/ask spreads that almost no institutional player has access to, passing that benefit on to our consumers. SunValley has gold operations but Vault will also be buying from other players with industry-level access. Gold is very incestuous, so if you are in the gold industry you can get deals that you won’t necessarily be able to access if you are not an industry player.
SR: Obviously this gold will be in multiple vaults, will their location be public knowledge? RS: We partnered with Brinks and will potentially partner with Loomis, both have some of the largest vaults in the planet and we are going to be leveraging it to vault the gold in Switzerland — Brinks’ vaults are published on the website.
SR: How often do you expect to conducts audits to provide transparency? RS: We are in advanced conversations with top-tier audit firms to conduct monthly audits. Vault is not taking any customer funds, we issue the tokens but a Nevada-based fiduciary puts the funds in a Trust structure, which then purchases gold on behalf of the individual and is vaulted in Swiss Brink Vaults. All ownership is with the fiduciary and the trust; Vault has no access to the backed gold or the money coming in, which gives legal clarification to anybody buying into the Vault token as a customer. There is full legal claim, the legal opinion from multiple jurisdictions is that our token is akin to a Principal Protected Note (PPN) in Canada or a Depository Receipt in the US. This basically means anybody holding the token can go up to the fiduciary and have a claim on the underlying gold , which is something that almost no other token out there is willing to offer in the gold space.
SR: It’s like an IOU that also reduces potential legal expenses… RS: It gives the holder of the token a guarantee that even if Vault as a company were to disappear, they have access to the gold seating in the Vaults through the licensed fiduciary, or directly, if the fiduciary also went under.
SR: Unlike other gold-backed stablecoins, Vault’s token price is pegged to the USD instead of Gold, why is that? RS: Pegging to the USD and backing with Gold was a rather a straight-forward decision , we did not want to be yet another gold-backed token. Pegging to the USD made sense because almost everybody measures their wealth not in ounces of gold, but in fiat currency, especially with USD which represents around 70% of international trade. Vault wants to replace Tether, which is riddled with problems and not reliable enough to be the market leader. There is a need in the market for a truly stable coin and we felt that backing by the ultimate source of stability over-time (gold bullion) was more appropriate and attractive to investors who don’t want to expose themselves to counter party risk in crypto. Why expose yourself to the small banks that many of the fiat-backed stablecoins are using? We have not seen a single fiat-backed stablecoin that is leveraging a tier-1 bank to hold their fiat and that is my concern — counter party risk and exposure to small regional bank failures — which happen often. Our gold is insured and agnostic to the bank network. We don’t have the counter-party risk that most fiat-backed stable coins are exposed to.
SR: So can I get this gold shipped worldwide? RS: If you go through the appropriate KYC/AML and have a vaulting arrangement we will be happy to ship your gold anywhere on the planet. Shipping LBMA Gold Bullion is not as straightforward as using FedEx or UPS to a warehouse. The second the gold leaves the vault, its value needs to be re-certified by the next vault to confirm that no alterations were made, proof of transfer, etc. So if you have a vaulting relationship, you will get your LBMA gold bullion bars.
SR: I know you have a big part of your team in Colombia, what are your go-to-market plans for the developing world? RS: We have a generic product that is accessible and redeemable by gold or fiat to anyone who undergoes KYC/AML. We have limitations to avoid money laundering and minimize any affiliation with nefarious parties, so at the time of issuance and redemption there is KYC/AML applied to ensure that the token is not used for illegal activities.
SR: What are your thought on crypto-collateralized and algorithmic stable coins? RS: That is the fantasy. Everybody wants to have an algorithmic, decentralized stablecoin after all. The reason Bitcoin took off is because people no longer like the idea of centralized, too-big-to-fail structures. But ultimately institutional money does need a centralization process so they have legal recourse to their money. If a decentralized stablecoin goes out of business, an institutional investor that may have brought in ten to a hundred million would have no legal recourse, no name to go after to get the money back. There is a group of people that don’t like centralization, we appreciate their view, but our token is centralized by design: from central vaults to fiduciaries, our whole value proposition is centralized to enable legal recourse to investors. I feel there are two problems with decentralized projects today: they need complex algorithms to maintain a peg -something that a redeemable token does not need, and that by virtue of being decentralized they offer no recourse to investors. They do solve a problem because centralization comes with additional costs, but decentralized models haven’t yet reached a level of maturity to compete against centralized models.
SR: As you may know from Stable.Report, there are more than 150 stablecoin projects at the moment, 50 of which are gold-backed, how do you see this space moving forward and Vault differentiating itself? RS: We have yet to come across a token that is backed by and redeemable for gold and USD, pegged to the USD. It’s very difficult to maintain a peg to the dollar and have a gold backing. We have a combination of gold and a gold hedge to defend ourselves and maintain a peg to the dollar. I’d posit that off the 150 stablecoins, only 10 of them are competitors, every project is on stealth or their model is yet-to-be-proven.