Saga has a bold vision for the future of global commerce, and it has created a tool that may allow people everywhere to trade directly with each other.
Unlike stablecoins, which rely on a single currency to maintain their value or tokens like Bitcoin which float freely, Saga has a novel solution. The token that Saga has created maintains its value via a tie to the International Monetary Fund’s (IMF) Special Drawing Rights (SDRs), which will be explained in greater detail below.
The team at Saga is also top-notch. The Israeli-based company has former central bankers on its team, as well as a Nobel laureate in economics.
In some ways, the Saga project is working to create a stateless stablecoin that can be used in the same way that a person would use a Bitcoin. The choice to tie the value of the Saga token (SGA) to the SDR is a good way to prevent the problems that Libra presents while sidestepping the issues involved with a token like Bitcoin.
Saga Has a Solid Idea
Bitcoin was a truly revolutionary idea.
While Bitcoin has been wildly successful, it isn’t really the same thing as currency, at least in the way that we are used to thinking about currencies. The biggest issue for Bitcoin as a currency is that its value swings around violently. This is a real problem from a trade settlement perspective, as volatility makes hedging more expensive.
The stablecoin solution is also not ideal, as it puts a single central bank in control of the currency. It isn’t a direct tie, as the stablecoin will likely be managed by a third-party, but any asset that is tied to a fiat currency will rely on the central bank that manages that currency to maintain its value.
Saga chose to use the IMF’s SDR as the base for its token. The system that Saga designed will not allow large moves in the value of its token vis a vis the SDR’s value, and unless there is some major volatility in the world’s largest fiat currencies, Saga’s token will be relatively stable.
What Are SDRs?
Special Drawing Rights aren’t a new idea. The IMF created them many decades ago, but they are rarely talked about outside of economic circles. SDRs are just a basket of the world’s biggest currencies, such as US Dollars, Euros, and Chinese Yuan.
According to Ido Man, who is the founder of the Saga Foundation:
“It (SDRs) achieves the purpose of not being reliant on a single currency or a single state (while) rendering accessible the usage of a hedging currency not only to central banks, but to the public.”
How it Works
When Saga launched its token on December 10th of this year, the value of one SGA token was worth the value of one tokenized SDR. Saga holds reserves in a variety of currencies, including cryptos, which are used to enforce the SDR peg.
There is no motivation for the SGA token to either rise or fall in value relative to the value of the SDR, as it is designed to be a stable store of value.
According to Man:
“If anyone wants to speculate, SGA is probably not the proper vehicle…If the market cap grew by $1 billion overnight, the price of SGA wouldn’t even double.”
Of course, the fact that the company is telling speculators to move on from the beginning will probably also dissuade people from trying to bid up or sell down SGA, which will likely help to reinforce its status as a digital reserve asset.
Why SGA is Relevant Today
There is no shortage of reasons why the SGA token may become a popular way for people to trade, and hedge fiat currency risk. The world is teetering on the edge of a recession, and some smaller economies, like Hong Kong, are already in a technical recession.
The modern take on economic management usually involves a lot of newly created money being spent into a low-interest rate economy, which means that some form of a rise in asset values is inevitable.
The big spend after 2008 manifested in record high equities and record low-interest rates (as much as ¼ of global investment grade debt has negative yields), and the broad economy still hasn’t recovered. More money creation is almost inevitable at this point, which makes non-political reserve assets like the SGA very attractive from a hedging perspective.
When governments start pushing central banks for more stimulus, the result is generally a lower currency value, which could make stablecoins less attractive as time goes on. A tie to the SDR makes these moves less worrisome, as one currency in the basket will benefit from a fall in the other.
Could SGA Become a Reserve Asset?
One issue that Saga may be anticipating is the political issues that tend to arise when an economy falters. South Africa has used currency control to attempt to maintain the value of its national currency, the Rand, and we may see this happen to larger currencies as central banks and governments look for ways to prop-up the value of their fiat currencies.
Capital controls in a regional economy aren’t going to destabilize the global financial system, but they could cause major problems if they were used by a nation like the United States to protect the US dollar. In addition to big moves in the FOREX market, global trade would be undoubtedly be impacted.
One of the most important things that currency does is enable trade. Saga’s SGA token allows investors large and small to hold a reserve asset that can be used across borders for trade, even if the economic landscape of a nation is in flux. Unlike a stablecoin, SGA is unlikely to be influenced by geopolitics, at least by the same amount that a national currency would be.
An Experienced Team
Saga has attracted some of the brightest minds in economics and technology to its project. The core group at Saga has experience across a range of industries and is well suited to make the SGA token a success.
Here is the core team at Saga (information from the company):
Ido Sadeh Man, Founder & Chairman of the Board: Mr. Sadeh Man spent the last decade leading product and technology organisations, including Odysii (sold to Gilbarco Veeder-Root, NYSE: FTV), and at Mobli where he was COO.
Keren Orian Nadel, Managing Director: With over 15 years’ worth of experience in strategy, product, marketing, operations and P&L management, Keren has held global senior management positions in both corporates environments (Microsoft, Haaretz Media) as well as startups. Keren holds a BA in Political Science and an MA in Public Policy from Tel-Aviv University.
Barry Topf, Chief Economist: Mr Topf joined Saga after a 33-year career at the Bank of Israel, where he served as one of the founding members of the Monetary Policy Committee and as Senior Advisor to the Governor, Stanley Fischer. He also held positions of Head of Market Operations, Head of the Foreign Currency Department, and Chief Investment Officer. In his capacity as an IMF Consultant, Mr. Topf has advised over 25 countries on economic policy.
Roy Eshkol, CTO & Blockchain Architect: Roy joined Saga with a wealth of knowledge and experience in technologies and infrastructures. With a passion for methodical information technology specifications, Roy leads Saga’s architecture design and development. Roy holds an M.Sc in Management Sciences in Management of Technology and Information Systems from Tel Aviv University.
Ron Sabo, PhD, Chief Scientist: With a PhD in experimental condensed matter physics from Weizmann Institute of Science, Ron leads Saga’s Research department. A Clore Scholar, he also lectures at the international program in Electrical & Electronics Engineering at Tel Aviv University.
Saga also has a number of advisers who are equally qualified in their respective fields, and will probably be a great help to the project. All their information is available here.
Saga is Creating New Assets
Cryptos were a huge shift away from existing asset classes, but with the SGA token, Saga has taken blockchain technology and made it into a viable trade and reserve asset.
In the future, the price of decentralized tokens may calm down, but for the moment, SGA is a bridge to a world where people can trade freely with blockchain technology, and not worry about price volatility. If you want to learn more about the project and token, just follow this link.