What actually Matters when creating a Stablecoin?
Bank-Issued Digital Fiat, Protecting against $T ‘Peg Attacks’, and Getting the Saudis to require your Stablecoin as payment for Oil.
Every Stablecoin Project that has been created has been focusing on ‘economics’, the ‘algorithm’, ‘cryptoeconomics’, and ‘incentives’.
But the only things that actually matter are:
- If you can compete with the ‘Trust’ and ‘Retail Footprint’ of a Chase Bank releasing a Digital Fiat product for their customers.
- If you can maintain the value in your Stablecoin upon a $T ‘peg-attack’ by any of the World’s Largest Banks.
- If you can get the Saudis to require your Stablecoin as payment for oil.
If Problem 3 can be completed, then Problems 1 & 2 are inherently solved.
Competing with the ‘Trust’ and ‘Retail Footprint’ of a Chase Bank releasing a Digital Fiat product for their customers.
Digital Fiat will crush all Stablecoin competitors (for the ‘Consumer’ use-case) because no Independent Crypto Startup Stablecoin (3P) will be able to compete with the ‘Trust’ offered by a Bank Stablecoin (2P): Users will be able to walk into any one of the Bank’s branches all across the US and deposit Physical Fiat and be issued a $1 Bank Stablecoin (ex: ChaseCoin) that will live in the Digital eWallet on their Smartphone.
They can pay for gas/groceries/utilities bills with it, and the Receiver (Merchant) can walk into any one of the Bank’s branches all across the US and redeem that Stablecoin for $1 of Physical Fiat.
No Crypto Startup has any chance of competing against that because you don’t have the ‘Real Estate Footprint’ for Consumers to walk in with Physical Fiat and walk out with Digital Fiat (or vice versa).
The second big problem of Digital Fiat being released is that the ‘Trust’ offered by the Bank Stablecoins will draw in a lot of the Speculators who just don’t feel like playing the “99 cent buy, $1 dollar sell” arbitrage game with the 3P Stablecoins anymore. They will ‘exit’ that Stablecoin’s ecosystem, and the ‘implied reserve’ backing that Stablecoin’s peg will decrease. Game theory says that if Stablecoin Speculators believe other Stablecoin Speculators will not be willing to ‘buy the next Stablecoin dip’ at 99 cents, 98 cents, or 95 cents, then maybe they should think twice about buying the dip as well.
As demand for that Crypto Startup’s Stablecoin decreases (both by Speculators and by Users), the Central Crypto Startup will have to begin to use their centralized USD Reserves (most likely VC funding) to support the peg.
Those reserves are not infinite, so this will eventually lead to the reserves (aka ‘Financial Firepower supporting the peg’) drying up- causing the peg to fail. As a result, ALL Stablecoin users in that ecosystem will move to the Digital Fiat Ecosystem created by Banks because they can Trust that they will be able to walk into a Brick & Mortar bank location and receive Physical Fiat in exchange for the Digital Fiat that they own.
Maintaining the value in your Stablecoin upon a $T ‘peg-attack’ by any of the World’s Largest Banks.
‘Maintaining the value in a Stablecoin’ means either keeping it worth $1 in all scenarios of a $T peg attack (meaning you would have to have the largest ‘Reserve backing the peg’ in the Universe) OR being able to give every Stablecoin holder $1 in collateral for each Stablecoin they have, in all scenarios of a $T peg attack.
All the Stablecoin Whitepapers have some ‘Competitors’ section and it goes something like this:
1. We’re better than Tether bc…
2. We’re better than MakerDAO bc…
3. We’re better than BitUSD bc…
4. We’re better than Basecoin bc….
And that thinking is WRONG WRONG WRONG.
That thinking is too short-term.
The long-term competition that Stablecoins actually have to worry about are:
How to defend the value held in your Stablecoin when banks have competing Digital Fiat offerings and are trying to destroy your Stablecoin Peg.
(Any of these Banks: https://www.relbanks.com/worlds-top-banks/assets. I know the Chinese Communist Party would love to direct the top 4 Banks on that list to crush anything that is a competitor to the Yuan in China & was created by a non-domestic entity.)
And the only thing that matters for Stablecoin Projects is: Can you do that? Yes/No?
[Banks are incentivized to break the pegs of Crypto Startup Stablecoins because it accelerates Consumers ‘exiting’ that Startup’s Stablecoin (which cannot hold the peg) and ‘entering’ the Bank’s Stablecoin System (which can be trusted to hold the peg). In doing so, the banks will increase revenue and number of customers- both driving an increase in share price, so yes Bank’s will be happy to attack pegs in the future.]
These are the levels of Competition in the Stablecoin Ecosystem:
Tether, BitUSD, Basecoin, everyone else : Difficulty Level 1
MakerDAO: Difficulty Level 5
…
Defend against a peg attack by JPM: Difficulty Level 99
Defend against a peg attack by ICBC: Difficulty Level 100
This is all very simple stuff, it’s just Least Common Denominator logic. The LCD is: Can you protect the value inside your Stablecoin upon a ‘peg-attack’ by an entity with $T in Assets or can you not?
If you can’t: Why are you wasting their time trying? You will get crushed in the long-term. You should try a new Idea.
If you can defend against a $T Bank ‘peg attack’: THAT is interesting.
It’s like Amazon in the early days- planning to beat out other online ecommerce retailers in the short-term, but always having a plan and vision to successfully compete against Barnes & Noble and Walmart in the long-term. If they have no long-term plan to win against Walmart, why try to compete against them in the first place?
Get the Saudis to require your 3P Stablecoin as payment for oil.
You have no military, therefore you have no chance.
Stablecoin Founders have to understand the History, Geopolitics, and Alliances that got the USD to be the Reserve Currency of the World.
Long Version: Click here.
Short Version:
We made a deal with the Saudis (Largest OPEC Producer) in 1974 that says we (USA) will keep the House of Saud in power by using our military to protect them from Israel and Iran as long as they require USD for oil purchases and plow their USD oil profits into US Treasuries. All OPEC Members follow what Saudi Arabia does and they require USD for their oil as well. We’ve kept the House of Saud in power for 50 years, so there are no problems with that deal.
Since USD is required for all Oil purchases, this means all countries have to buy/acquire USD somehow, and then all those USD oil-profits by OPEC Members are taken and used to buy our Treasuries.
OPEC Members using their Oil Profits to buy our Treasuries has 2 effects:
1) Funds our massive military in the Middle East to make sure everyone keeps requiring USD as payment for oil. Our military takes out Saddam Hussein in ’03 and Qaddafi in ’11 because both were trying to require a non-USD currency for oil payments. (Can’t allow that to happen or other OPEC members may follow suit and cause demand for USD to drop like a rock- inciting USD hyperinflation)
2) Since China and Japan know OPEC Members are storing their Massive oil profits in US Treasuries, they take their massive surplus of Export-Economy Dollars and buy ENORMOUS amounts of our debt in order to keep the USD strong while they devalue their own currencies (devaluing their own currencies relative to the USD makes their products cheaper for US citizens to buy). This is how their economies function.
So, the current system will continue until the World runs out of oil, all the while everyone else is funding our Military to protect the Saudis. It’s a beautiful system that nobody in the World thinking about/working on/investing in Stablecoins understands. But my Genius understands it.
This Track was slight-expansion on a Comment I left on Albert Wenger’s Blog Post: “The Quest for a Stable Coin”.
__________________________________________________________________
If you enjoyed this Track, please “CLAP” 50x below, and then SHARE it with One Hundred THOUSAND People.
Witness All of my Genius in the WORLD’S FIRST Written Album:
The Official Guide to Stablecoins LP
__________________________________________________________________
