Thanks for posting this. I see stablecoins as a bridge to mainstream adoption (a necessary step for Bitcoin), but I agree that the risk is present for them to become digital fiat currency. We must remain diligent.
There are a few things I forgot to mention. Allowing banks to use Treasuries further fuels demand for an ever-growing mountain of government debt. It also enables banks to rehypothecate Treasuries or bonds into base money. Traditionally, bonds were considered “cash equivalents”, but they can now be used as collateral for stablecoins, which quietly expand the money supply. One could argue this is akin to banks issuing paper certificates for gold in the past. As long as the peg remains at $1, it could serve as a stealth mechanism for dollarising the world, to the benefit of the U.S. debt machine and the detriment of future generations.
This is why I call the Cryptoverse (all things crypto) excitingly scary. Although the stablecoin path is necessary for mainstream adoption, the question is, can Crypto move beyond it once mainstream adoption happens?
Excellent piece. Very troubling. I thought stablecoins would be just that, stable. How can bank reserves be used if they’re fractional. Backed by short term treasuries is fine but that means the stablecoins are impacted by inflation. What adjustments would have to take place?
If reserves are fractional, redemption risk creeps in just like in traditional banking. Even with short-term Treasuries, inflation erodes real value. The fix would be full-reserve backing, real-time transparency, and possibly inflation-linked assets to preserve true purchasing power.
Thanks for posting this. I see stablecoins as a bridge to mainstream adoption (a necessary step for Bitcoin), but I agree that the risk is present for them to become digital fiat currency. We must remain diligent.
There are a few things I forgot to mention. Allowing banks to use Treasuries further fuels demand for an ever-growing mountain of government debt. It also enables banks to rehypothecate Treasuries or bonds into base money. Traditionally, bonds were considered “cash equivalents”, but they can now be used as collateral for stablecoins, which quietly expand the money supply. One could argue this is akin to banks issuing paper certificates for gold in the past. As long as the peg remains at $1, it could serve as a stealth mechanism for dollarising the world, to the benefit of the U.S. debt machine and the detriment of future generations.
This is why I call the Cryptoverse (all things crypto) excitingly scary. Although the stablecoin path is necessary for mainstream adoption, the question is, can Crypto move beyond it once mainstream adoption happens?
Excellent piece. Very troubling. I thought stablecoins would be just that, stable. How can bank reserves be used if they’re fractional. Backed by short term treasuries is fine but that means the stablecoins are impacted by inflation. What adjustments would have to take place?
If reserves are fractional, redemption risk creeps in just like in traditional banking. Even with short-term Treasuries, inflation erodes real value. The fix would be full-reserve backing, real-time transparency, and possibly inflation-linked assets to preserve true purchasing power.