“A Solution in search of a problem”
I was listening to an interview with a well respected economist today who used this phrase. “If you want to have Euros why not just use Euros?”
This begs the question, in the era of Digitisation and abundant technology
What innovation do Stablecoins really provide?
This is an interesting question to answer and there are clearly several obvious ones:
Reducing Counterparty Risk
One of the issues Stablecoins address is that of counterparty risk with agents outside the traditional financial system.
Using unregulated exchanges for storing assets (for example) could be mitigated with stablecoins. A Brokerage account is no longer required, but it's important to note this is not actually how most exchanges currently operate.
The worries about Tether are well documented so I will not cover it but this is a good example.
Hybrid Digital Money
Restrictions, delays, costs with transferring Euros from one person to another can be reduced or eliminated with stablecoins that are using a global decentralised money transfer network.
For traditional financiers Bitcoin as a store of value is always a very big leap. Maybe a Peer to Peer Digital Cash is what it really should evolve to. Stablecoins are ideally suited to this task.
New Forms of Decentralised Finance
Some Cryptocurrencies have issued a form of debt collateralised by tokens on their networks in various forms.
HBD for example in part uses the mechanism of maintaining a market peg to regulate the debt levels in a decentralised manner.
There are other projects such as Terra with variations of approaches but none of these projects have achieved sufficient scale yet to provide enough liquidity to the market here but the idea is promising.
A good post by @dalz today covers HBD.
https://leofinance.io/@dalz/printing-hbd-or-data-hbd-created-and-removed
What do you think, Are Stablecoins a solution in search or a problem?
- This post is my daily contribution to a challenge by @dragosroua to "publish a meaningful post every day of January"
Who's Up For A January Writing Streak?
During January I am visiting different communities virtually on Hive to see where I get the most engagement, and which inspire me most to write. Where I get the biggest welcome I might stick around :)
I hope you enjoyed this post to the Leofinance Community about Stablecoins. If you would like to follow me to hear more I write mainly about Blockchain and Crypto but this month I am really going to explore different communities on Hive so my posts will be quite varied.
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It sounds like something someone would say if they had never read a single page about cryptocurrency.
Euro transfers are not censorship resistant*. A Chinese citizens can use stablecoins to move money in and out of China - euros do not provide such a solution because they can't purchase more than $50,000 of foreign currency through the banking system.
That alone is enough justification for the existence of stablecoins - let alone the fact that they can be much more suitable for online commerce than custodially held fiat currency. There is a chicken and egg problem of requiring widespread usage before you see the benefits, for mainstream cases, but chicken and egg problems are much easier to solve than people tend to think - it's just a matter of first finding growth in marginal use cases where censorship resistance provides sufficient advantage to overcome the hurdles of lack of widespread acceptance.
*Admittedly, neither is Tether, DAI or USDC, but other stablecoins are or can be
Completely agree. Censorship resistance is a major element of the benefits of a Peer to Peer Digital Cash, or Hybrid Digital Money as I termed it in this post.
Interestingly this economist is quite well versed in Cryptocurrency, but I think the point he was making was why try to create a pegged instrument, why not just use the real instrument. It does miss the points you made.
On the other side of the conversation was a trader making points that printing cash on paper and making physical coins was dirtier, from an Environmental point of view, than mining Bitcoin. Probably not an interview worth sharing :)
It seems like a question any economist should be able to answer for themselves. People make futures contracts for oil, corn etc. because a derivative of a commodity doesn't have entirely the same characteristics as the base commodity. Just in the same way that buying a futures contract enables certain things that buying the commodity itself does not (especially hedging against unpredictable future events), a crypto derivative has characteristics that "real" fiat does not have.
Even custodially backed stablecoins like Tether (which I don't recommend anyone use), while it is not truly censorship resistant, it faces different censorship risks. If Tether claims that your money is stolen, then it is possible they could freeze your account as they have several times in the past. However, for example if you were using it to evade capital controls, it is pretty unlikely Tether would freeze your account. A bank account would not work for this.
I remember a couple years back a study was done on what the primary usage of TetherUSD was, and at the time it was mostly used for moving money across the border between China and Russia. Clearly the people doing this must have had a reason for not using bank accounts to do the same thing (presumably it's more difficult, or expensive, or perhaps they were doing something illegal and avoiding banks for that reason).
Is there a Euro stable coin? That will be interesting.
In any case, the prominent stable coins at the moment seem like ticking time bombs.
Algorithm based stables are the future but when will that future come?
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There is Tether Euro and there's one on Terra afaik. I personally would stay away from both, but especially Tether.
IMO I think stablecoins have an important place in "banking the unbanked" - current fiat money is largely managed by banks that have an overwhelming say in what you can or can't do with your money. Sure, there are problems, but I think there's big potential if stablecoins are done properly. Although perhaps the problem is much bigger than I think it is.
Do you think CBDC will solve the problem of banking the unbanked?
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In my rather uneducated view probably not, since it seems to be regulated in the same way fiat money is. Banks will still assign higher risk values to people who are unbanked and continue to gatekeep them. It's just that now the money is all on a ledger that might be publicly accessible.