Peter Thiel, Coinbase, Distributed Global, GSR.IO and 40 other investors have invested a total of $5 million into a seed round for the new stablecoin project, “Reserve.” If successful, the new cryptocurrency will rival other stablecoins pegged to the USD, including Tether (USDT) and TrueUSD (TUSD).

Reserve works by “locking up other cryptoassets in a smart contract in order to provide backing to the Reserve token and stabilize its price.” It may sound like the group is reinventing the wheel, but Co-founder Nevin Freeman believes that the project is solving a new problem. He sees the problem with other stablecoins as being the eventual loss in confidence that the coin is backed by fiat assets as it claims to be.

Freeman has a point, and the timing for the release of Reserve is conveniently in sync with the most recent rumors that Tether may not have the cash reserves it claims are backing the tokens. This has resulted in a fair amount of FUD, and possibly a shift out of Tether into TrueUSD and other coins. Tether resonded by providing an unofficial statement from its law firm. According to Bloomberg, Tether hired the former FBI director, Louis Freeh’s law firm to vet its finances. Freeh Sporkin & Sullivan LLP did not conduct an official audit as one might expect, but they did have access to Tether Ltd.’s accounts at two banks. During that time, the lawfirm confirmed that Tether held $2.54 billion in funds as of June 1st. This did generate additional skepticism, as a lawfirm was retained, rather than a third party accounting firm that could conduct a proper audit. In addition, the letter provided by the law firm was not an official confirmation from its own attorneys, but rather an affirmation that “bank personnel” confirmed the necessary information. The letter stated, “FSS is not an accounting firm and did not perform the above review and confirmations using Generally Accepted Accounting Principles […] FSS has assumed, without further inquiry, that the bank personnel providing the confirmations were duly authorized to provide such confirmations, and that the confirmations were correct.”

In addition to solving the volatility problem as do other stablecoins, Reserve also solves the trust problem associated with the need for (and lack of) periodic audits associated with cash reserves, by using a trustless smart contract as one would expect with a cryptocurrency. Rather than pegging the coin to the USD, it ties it to multiple digital assets. Although backers included some major players, the group intentionally kept the seed funding small, presumably as part of the solution to the trust problem.

Freeman believes that the coin will help protect people in countries with failing economies, where currencies have been devalued. People in countries like Venezuela could buy into the coin, and use it for transactions instead of cash, without worrying that the coins they have today won’t be enough to buy a carton of milk tomorrow.

In addition to its superstar team of investors, the Reserve team has a former SEC commissioner on its advisory staff. In today’s uncertain regulatory environment, this is close to being a necessity.