Crypto investments, for the most part, are still in the speculative realm. The main question to ask yourself is whether you believe the token you’re interested in has (or will have) a utility that is valuable. In this article, we’ll take a closer look at the benefits of the DUSD for DGTX and how its utility will create demand and drive value. Read on to find out more.
DUSD: Utility Creates Demand and Drives Value
When it comes to investing, two key considerations are price and value. Price is what you pay, value is what you get. Price is objective, that’s to say, it’s not subject to your individual personal feelings. The price is the price. Alternatively, value is subjective. It is up to the individual to decide if the price adequately reflects both the current state and future prospects of the company.
The issue is the market. The market is not logical. It is emotional and subject to unpredictable mood swings. Short-term price action does not dictate the intrinsic value of a company. Intelligent investors try to find gaps between price and intrinsic value by conducting research and gathering evidence based on company history and performance.
Benjamin Graham’s book on value investing focuses on picking companies with high intrinsic value, the endeavor of which has served investors well. Digitex Futures is a perfect example of this as it brings value to the crypto derivatives market by offering a unique solution of zero-fee trading. Regardless of the current price action of the DGTX token, this remains true. Let’s look at the current DGTX network flowchart and identify some of the improvements that the introduction of the DUSD will bring to this platform.
Top Level View of the Current DGTX Network
The underlying value of the DGTX token is always going to be driven by its utility. Currently, that utility is the Bitcoin futures market on the Digitex Futures exchange. The reason for this is because it quantifies the demand for the product. With the current ecosystem, executing contracts using the DGTX token, we see the value of futures contracts dictated by the underlying value of the DGTX token. This has shown that exchange metrics are susceptible to the volatility that exists in the underlying DGTX asset.
This volatility is currently acting as an impedance to wider adoption of the exchange as, quite simply, traders are wary of their capital being dependent on the DGTX token at this moment in time.
This adoption obstacle is exacerbated by the fact that the DFE spot market is not implemented yet and so profits must be taken by transitioning through the chain, incurring withdrawal, gas, and external exchange fees to trade DGTX versus ETH, BTC, etc.
In addition, with all profits and losses denominated in DGTX, traders who want to hold profit in assets other than DGTX are putting downward pressure on the DGTX token price.
When the team implements the spot market to the exchange many of these impedances will be reduced as traders can enter and exit positions without having to go through the blockchain. However, the risk of drawdown in the trader’s account in dollar terms will still exist while trading due to the volatility of the underlying asset relative to traditional currencies. This is yet to be tested but may still act as an impedance to more risk-averse traders. The solution to this is the DUSD.
Proposed Upgrade to the DGTX Network
The benefits of incorporating a stablecoin (DUSD) to denominate transactions within the Digitex Platform are multi-faceted. Let’s take a look at each one individually.
A Multiplier Effect on the Utility of the DGTX Token
As outlined in the whitepaper, each DUSD can only exist if 500% of its value has been staked as collateral in a CDP account. This is how DUSD is created. These account holders who mint DUSD can then sell the DUSD on the Digitex Spot exchange to users who just want to trade on the platform but not be exposed to the DGTX token.
This now opens the exchange to more risk-averse traders who would rather have their balance denominated in USD terms. As every DUSD token is backed by five times its value in DGTX, this means that traders using DUSD are driving a demand for DGTX that will be five times that of the value they are trading.
So, when you see open interests in the region of 100,000,000 DUSD, this must have an underlying collateral dept value of $500,000,000 to even be possible.
The introduction of DUSD does more than increase the intrinsic value of DGTX by a factor of 5 as it also alleviates the risks associated with capital drawdown for traders. The best traders on the planet all have the same mission – manage risk and reduce drawdown. A stable DUSD on a zero-fee platform ticks the box for both.
The new tokenomics offers holders options. It provides two clear methods of staking their DGTX tokens. The first, an interest-free loan which they can use to invest in other assets that they think are of value. So, if you are looking to hold DGTX for the long run, you now have the option to use 20% of that capital to purchase other assets that you would like to add to your portfolio, benefiting from their price appreciation. And, as Digitex will be incorporating a spot market, you won’t even need to leave the platform to purchase some of your favorite coins or tokens.
This is a huge utility point as holders can create DUSD and use that to increase their DGTX stack by a massive 20%. With reduced downward pressure on the DGTX token and increased intrinsic utility, it is expected that the price will appreciate. When this occurs, holders can balance their CDP positions with token gains and increase their position as DGTX grows in value. This way, holders play a direct role in their investment by facilitating DUSD demand to traders while benefiting in price appreciation.
The second option for holders is a staking mechanism which the team announced this week. In this system, holders can benefit from system rewards for staking their tokens. As mentioned in previous reports, restricting supply creates an imbalance in the supply/demand ratio and creates upward price momentum. Thus, by staking, holders now have a definitive method to restrict the supply and help achieve their ultimate goal – DGTX growth.
Reduced Sell Pressure from DUSD Traders Profits
Profit-taking from trading futures contracts will no longer create a negative pressure on the DGTX token as all PnL will be denominated in DUSD. As a stablecoin maintained at a $1 target price, it is assumed a large proportion of traders will be happy to hold balances in DUSD. This means that, for the most part, there is no need for traders to exit positions from DUSD (assuming it maintains its target price).
More importantly, for traders who want to grow their BTC and ETH balances, the Digitex Spot exchange market will facilitate this in DUSD terms. Therefore, traders exiting from DUSD to these markets will not put direct downward pressure on the DGTX token market.
Product development is a dynamic environment and anyone who is working in innovative new product introductions understands that being adaptable and open to change for the right reasons is an important factor in the success of modern companies. The introduction of DUSD is the right step for the Digitex platform and shows that the team is not just developing any product, but the right product.
Stay tuned as we dig deeper into tokenomics in the coming weeks and project what the effects of this ecosystem could have on the value of the DGTX token.