Hot on the heels of the ill-fated Bananacoin (remember that?) comes another token linked to the price of a foodstuff. Yesterday, the crypto world was rocked by the announcement of an Initial Sardine Coin Offering. Specifically, a Vintage 2020 Sardine Coin, known as SARD2020.
Sardines in their tin.
The issuing company, MYSardine, launched the coin on January 8 at CES 2020, the high-profile consumer electronics trade show in Las Vegas. According to Coindesk, MYSardine presented “actual sardine tins and mySardines.com cards to casual passersby and attendees.” SARD2020 will be an ERC-20 token based on Ethereum. Each coin of the issue will be backed by one can of 2020 vintage sardines.
The issue period will run from January 8 to April 1, 2020. 75% of the proceeds of the issue will be used to buy up as much as possible of canned sardines production in 2020, with the remainder mainly going towards operating costs. The coin itself will be issued in September.
Initial reactions to Sardine Coin ranged from incredulity to hilarity. Inevitably, there were innumerable fishy jokes. Coindesk wondered if the fact that the issue period ended on April 1 meant it was an elaborate April Fool prank. Michael O’Connor pointed out on Twitter that Jérôme Grandidier, chairman of MYSardine, is a French speaker who would perhaps be more familiar with the French term “poisson d’Avril," which means "April Fish." How appropriate.
But issuing a stablecoin pegged to vintage sardines is not as silly as it sounds. It is a lot more credible than pegging a cryptocurrency to bananas, though this is a pretty low bar. Sardines are not only delicious, they can be valuable. Canned sardines that have been aged under controlled conditions are prized for their “mellower flavor, which after years of turning becomes more subtle and nuanced, with a soft, plump texture that probably comes from the tiny bones in the fish breaking down over time.” Because of this, they command a premium price. In 2013, one brave individual bought a 32-year-old can of sardines for $53: the original price of the can was probably less than a dollar.
Importantly, that can was sold as a collectable, though the contents - remarkably - turned out to be edible. MYSardine’s pitch is based not so much on the idea that aged sardines are delicacies, but that they are collectables. The company says that the product can be eaten for up to 15 years or kept, uneaten, for hundreds of years. I suppose, in controlled conditions, tin cans are virtually indestructible. But MYSardine’s estimate that the value of the cans will rise by 20% per year seems to derive from the growing market for aged sardines as a delicacy. If that market were to collapse, would the price of collectables continue to rise at that rate?
Undeterred by a thin market and a niche product, MYSardine has ambitious plans for its fishy token. According to the whitepaper, the coin is an improvement on fiat currency-backed stablecoins such as Tether:
On the market today a proposed solution is the creation of a stable value coin (often called a “stable coin”), whereby an issuer distributes a cryptographic token to customers in exchange for a specified fiat currency, for instance, the U.S. dollar, at a fixed 1:1 exchange rate. Because the U.S. dollar is a highly desirable medium of exchange, as well as a globally accepted unit of account, it is a desirable peg for a stable coin. However, fiat currencies are not the best and only medium of exchange….
In this paper, we propose the SardineCoin (SARD2020), a stable coin that combines the intrinsic value, time appreciation, durability, scarcity of vintage canned sardines with the technological advantages of a cryptocurrency.
Sardine cans are the ultimate hard money. Who knew?
As with all things asset-backed, the value of SARD2020 will depend entirely on the credibility of the underlying assets. To this end, MYSardine says that the cans backing SARD2020 coins will be kept in central reserves. If an investor removes their cans from MYSardine’s custody, their coins will be burned. The website describes the controlled conditions under which the cans will be kept, and says that the reserves will be audited twice yearly.
I was struck by the similarity between this and buying space in commercial cellars for vintage wines. Leaving your vintage wine in a commercial cellar ensures it is kept in the right conditions. But it also means you can’t easily drink it. You’ve exchanged convenience and, dare I say it, liquidity for long-term returns. On the face of it, MYSardine’s scheme is similar. However, the addition of a crypto token could potentially transform the canned sardine market in two ways:
- the initial fundraising could enable the company to vault sufficient stocks to create an artificial scarcity of canned sardines, which should raise the price
- listing the token on crypto exchanges helps to develop a liquid market for the canned sardines held in MYSardine’s reserves
MYSardine has already bought up significant amounts of previous vintages using the proceeds from a previous ICO, the coin for which will be issued at the end of January. And it clearly intends to corner as much of the 2020 market as possible, though it is up against stiff competition from (among others) large supermarkets. Whether it will succeed in vaulting enough of the 2020 production to raise the price significantly is as yet unclear. There’s a lot riding on this Initial Sardine Coin Offering…
MYSardine also says it wants SARD2020 to be traded on crypto exchanges. It has yet to secure a listing, but as the coin won’t be issued until September 2020, it has plenty of time. It also says it intends to create a platform to make it easier for investors to redeem their tokens and claim their sardines. As coins will be burned when they do this, SARD2020 could become very deflationary if more investors want aged sardines as delicacies than as collectables, which I suspect could be the case. The price of both the cans and the coins could become very volatile.
I’m afraid this is not consistent with the company’s designation of SARD2020 as a “stablecoin,” nor with its ambition for the coin to compete successfully with Tether and other fiat-backed stablecoins on crypto markets. The likes of Tether stabilize a highly volatile crypto asset by linking to an otherwise unrelated asset with a much larger and deeper market. But what MYSardine is doing is using a token to create a market for a scarce and highly illiquid physical asset. The token is not “stabilized” by the asset, its price necessarily varies with the price of the asset because of the one-for-one quantity peg (one coin = one can). This is the polar opposite of a stablecoin.
This highlights a fundamental confusion in the minds of many crypto enthusiasts. They think that scarcity, durability and fungibility make an asset an ideal anchor for a currency. To an extent, this is true: gold is scarce (though not the scarcest metal on earth), it is durable, and it is fungible (one lump of gold is indistinguishable from another). But assets that are scarcer than gold can be highly volatile in price and extremely difficult to sell. And this actually makes them unsuitable as currency anchors. After all, the essence of an anchor is that it stabilizes whatever it is anchoring. Things that are thinly traded and buffeted by the whims of fashion can't stabilize anything.
Sardine Coin is not, and never will be, a stablecoin. And nor is it any sort of currency. It is an asset-backed crypto token, or if you prefer, a tokenized real asset. But that doesn’t make it a bad thing. Tokenizing can create liquid markets for all manner of weird and wonderful things. Investors need to be aware of the risks and do their due diligence, of course, especially as crypto markets are risky and poorly regulated. But tokenizing delicacies like aged sardines can create new investment opportunities and - perhaps - the possibility of high returns. And if your investment fails, you can still enjoy eating your asset.
