The Stablecoin-Oil Thesis

45 min readJun 22, 2018

The Guide to creating a Stable Currency for the next 500 years.

Everyone is building 3rd-Party Stablecoins wrong because they don’t have the correct Information. I’m the only one in the World with the correct Information.

Having a stable currency is about geopolitics, history, and military might- not ‘algorithms’.

I am infinitely bearish.

Here is the concise thesis. We will explain it fully in the Track below.

You can’t tell the market what the price of your coin is, the market will tell you what the price of your coin is. (P Byrne)
The stablecoin peg will break when there are no new investors because it leads to the market-making bot eventually running out of money (P Byrne)
Your stablecoin can only be valued at $1 if it has the global consensus of the international trade (& oil) community that it is worth $1. Until this happens it’s value can only be $0. (C Robtoy)
If you don’t have a military then you cannot (99.99%) get your stablecoin to be the de-facto currency for international trade & oil. (C Robtoy)

Our “algorithm” will keep it stable, don’t you worry.

Table of Contents (Links do not work in Medium App)

Definitions
Begin Essay
Info Required for your Stablecoin to be the World’s Reserve Currency
How a Smart Team would get their Stablecoin to be the World’s Reserve Currency
3 Stablecoin Hypotheses
Conclusion
What will Investors do after Reading this?
Graphs
July 6, 2018 Email Exchange
August 20, 2018 Edit

Definitions

3rd-Party Stablecoin = 3P Stablecoin = “Stablecoin”
A Stablecoin from an independent Stablecoin Startup (Carbon, Stably, Tether, Reserve, TrueUSD, etc.)
In circulation now.

2nd-Party Stablecoin = 2P Stablecoin = “Digital Fiat”
A Stablecoin created by a major bank upon receipt of Physical Fiat from a consumer (ChaseCoin, WellsFargoCoin) and credited to the consumer’s Digital eWallet on their phone. Consumers can always walk into a 2P Stablecoin’s respective Bank Branch and redeem a 2P Stablecoin for $1 in Physical Fiat.
AKA ‘ChaseCoin/WellsFargoCoin/BOAcoin’.
In circulation starting 2025.

1st-Party Stablecoin = 1P Stablecoin = “Digital USD”
A Stablecoin created by the Federal Reserve upon receipt of a USD Bank Transfer by a bank. Those 1P Stablecoins are then held by the bank until consumers come in to deposit fiat in return for the 1P Stablecoin being credited to their Digital eWallet on their phone. 1P Stablecoins can be credited to consumers by both large banks and small banks alike. 1P Stablecoins will be used most by small banks who have no need for their own ‘branded stablecoin’. 1P Stablecoins can be redeemed for $1 in Physical Fiat at any bank in the USA.
AKA ‘FedCoin’.
In circulation starting 2040.

1P and 2P Stablecoins are the most trusted extensions of the USD that can be created (because they are redeemable for $1 in Physical Fiat at a bank), and their Stability will also be secured by the underlying strength of all countries being required to buy USD in order to buy oil from OPEC Members to power their country.

In this article when we talk about ‘Stablecoins’ we are talking about 3P Stablecoins.

I am extremely bullish on 1P and 2P Stablecoins (aka “Digital USD” and “Digital Fiat”) because I’ve seen how amazing Digital Fiat is in China with their Alipay and WeChat Pay systems.

Begin Essay:

I used to be Bullish on Stablecoins such as Basecoin and MakerDAO. Then I read some of Preston Byrne’s ideas…

Stablecoins are doomed to fail
Stablecoins are doomed to fail, Part II
Stablecoins are doomed to fail, Pt. III

Plus I got some more Information into my brain about how/why past stablecoins have failed

…and now I am bearish on them.

I liked this point in Part II:

Long have I been a critic of the “stablecoin” concept — the techno-magical idea that a cryptocurrency can tell the market what its price should be, rather than the market determining what a cryptocurrency’s price should be (the usual way these things work).

That makes sense in my brain- you can’t just say your token is $1 and the market will value it at $1 (over some time period).

And I liked this point as well:

I went and read up on Nubits and the problems started when no new investors were coming in to buy the token to keep it up at $1. Then, their market-making bot tried to keep it at $1. But when their bot ran out of money this led to the whole system collapsing- giving weight to his Tweet: “Stablecoins don’t work without new investors”.

Here’s another one of his points on that:

This kid gets it, too:

I have used USDT in the past. I won’t anymore, because the market can flip a switch and not value them at $1 anymore, at any point in time.

I’ll take the [Altcoin-to-BTC exchange fee at Crypto/Crypto exchange + Withdrawal and Network Fee + BTC-to-USD exchange fee at FDIC Insured Crypto/Fiat Exchange] hit as my “Tether Insurance”.

This is another good blog post of why all 3 types of stablecoins will only work if there are more new entrants to sell to.

So, safe to say I do not feel comfortable using any one of the massively-VC-funded stablecoins at the moment. I also do not feel comfortable using any of the non-VC-funded stablecoins.

I believe that the next stablecoin I will feel comfortable enough to use will be the “Digital USD”. “Digital USD” would be the Federal Reserve issuing DUSD on the blockchain- able to be redeemed anywhere (with a cash register) for $1 USD in fiat currency. I believe this will be the next stablecoin I feel comfortable using with 99.99% certainty.

But why? Why would I feel comfortable using Crypto-USD and not some of the more innovative stablecoins?

Answer: I feel that since the USD is the currency for international trade (& oil) there is a higher strength of global consensus that 1 USD = 1 USD, instead of 1 BASECOIN = 1 USD.

If I want to store my value in something that is dollars, I would prefer that to be the one that has the global consensus in the international trade (& oil) community- and the one that is backed by massive military firepower.

So how can you make a Stablecoin that cautious/skeptical people would use (which is most of the world’s population)?

You have to dislodge the USD as the world’s currency for international trade and dislodge the USD as the world’s currency for oil. If you can’t do that then your stablecoin may only be a ‘little bit better’ than USD (and, consequently, will have ~0% of the world population as users), when it actually needs to be ‘an order of magnitude better’ to account for the switching costs of becoming a new user.

Here is what I think a team would need to understand in order to get their stablecoin to be the de-facto currency of the world:

Recognize that unless you disrupt the USD as the currency for international trade (& oil) your stablecoin is actually worth $0 because it does not have global consensus that it is $1.
Realize that the USD is the #1 currency in the world because we got lucky- A LOT. Here is a long paragraph with many of the important ways the USA got lucky: Because of our geography, it is impossible to invade from the East or West. And it is nearly impossible to invade us from North or South because the invaders would have to fight a massive war against CAN and MEX first- to which we would eventually come in and crush the invaders. This geography protectionism allowed us to sit on the sidelines and be a supplier for both World Wars. Eventually we got involved, but what ended up happening was at the end of WWII we had more than 66% of the world’s gold, no destruction to mainland USA, and pretty good stability (relatively speaking) compared to the rest of the warring world. This lead to the Bretton Woods Conference in 1944 to peg all the world’s currencies to the USD, which in turn would be pegged to gold. All 44 ratifying nations would have to keep their exchange rates within 1 percent by buying and selling USD as needed. This meant a nation’s central bank would keep the USD as part of their Official International Reserve Assets- creating a small constant demand for the dollar. In 1971 the USD was taken off the gold standard, making the USDs only have value equal to the paper they were printed on. Fearing a decrease in USD demand now that it was backed by nothing, in 1974 Nixon cut a deal with the Saudis where they would price their oil in USD, only take payment for their oil in USD, use their USD oil profits to buy US Treasury Bills (aka US Debt) & buy Billions of $ of our military equipment (they are the largest foreign military sales customer), in return for our Military protecting the Royal House of Saud- keeping the family in power as long as the deal continues to work for both parties. (Interestingly, we never made this kind of deal with Qaddafi of Libya [the largest oil reserves in Africa, and among the 10 largest globally] when he gave up his nuclear weapons, and we took him out when he tried to price his oil in a new currency. Our deal with the Saudis could be repeated with Kim Jong-Un: Quietly help the US out [meaning get rid of your nukes], and we’ll quietly give the Kim family the military protection that the House of Saud has enjoyed for 50 years. I’m skeptical of that outcome, though, because NoKo has no oil. Maybe we develop a better relationship with NoKo and use that situation as trade negotiation leverage with China. Ok back to all the ways the US got lucky…) Then just one year later in 1975, Saudia Arabia used it’s massive OPEC influence (as the largest OPEC oil producer [at the time] and 2nd largest oil producer in the world only to USSR) to get all of the OPEC nations to follow suit with pricing/accepting USD for their oil. In Graphs 1, 2, and 3 near the bottom of this Track we can see that the OPEC nations nearly tripled (relative to their percentage of the world total) their purchasing of US Debt in the 10 years after our 1974 deal with the Saudis, and Saudi Arabia itself became a monster holder of US Debt, holding more than 25% of it in the early 1980s- a 12x increase (relative to their percentage of the world total) to what they had in 1974, and a 30x increase nominally. So our deal with the Saudis cemented the USD as the reserve currency of the world and the virtuous cycle was enabled- where every nation has to hold USD (which they acquire by selling us goods & services at favorable exchange rates) in order to buy the oil that powers their country, and then every nation holding USD causes the USD to become the most liquid currency, which makes it cheaper & safer for everyone to hold, so then it becomes the easiest currency to denominate international trade contracts in. And when these nations buy oil from OPEC members, those OPEC members just turn around and use those dollars to buy our new debt that we just created to print more dollars! (Or they buy our military equipment.) And then we use the dollars received from our debt-selling process to fund our massive military, which makes sure everyone continues to use the dollars for oil, and this virtuous cycle stays in effect. This virtuous cycle is where the massive demand for US dollars comes from, and the massive demand to buy our Treasury Bills (which is the debt used to create our dollars) comes from- smart people know that the USD will probably stay the Reserve Currency for some time into the future because everybody’s already using it, the world is pretty stable, and we have a massive military that can make sure those who buy/sell oil continue to use the dollar. Oh and we own SWIFT, so if any nation is not behaving, we can throw on those sanctions and just shut down their use of USDs in their country’s banks- cutting them off from the dollar and, effectively, the world economy. This trust/use/demand by everybody in the US Dollar allows us to have a standard of living here in the US not possible anywhere on Earth, at anytime ever before. We have military bases in 141 foreign countries, China has 1 military base in a foreign country. We took out Saddam Hussein in 2003 when he was started selling his oil for Euros, and we took out Qaddafi in 2011 when he wanted to sell his oil for a new currency: the Pan-African gold backed dinar. A lot of things went our way to get international consensus to be 1 USD=$1. (And if you’re wondering how important the US-Saudi Relationship is now- 44 years after first making the deal- look where President Trump went for his first foreign visit- to Saudi Arabia. While the whole world was saying “What does a President Trump mean for our country?” and “What does a President Trump mean for our deals with the US?”, the first person he reassured was the Saudis- and they even signed a $110 billion arms deal!) Recently there have been rumblings that the Yuan will overtake the dollar as the petrocurrency, because 2017 was the first year China took over the US as the world’s largest oil importer with the US slipping to 2nd (potentially giving China leverage in trade negotiations with Saudi Arabia)- a gap that will continue to widen as a saturated US market bought 17 million autos in 2017, while China still has room for growth, buying 27.5 million autos in 2017. Imao (in my awesome opinion) I don’t think the Yuan will overtake the USD anytime soon as we already have many alliances and military bases in the Middle East (China has only 1 foreign military base and it’s in Djibouti) and there’s no way Russia wants the Chinese currency to win, so Russia and China will sabotage each other’s currency supremacy against the dollar and the current Schelling Point (USD supremacy) will continue until a nuclear WWIII or the world runs out of oil.
Realize that you don’t have a military that can provide massive protection to those who own the world’s natural resources…which means you have no leverage in a negotiation with them. So how can this still work out? I think it could still work out if you timed it so that your stablecoin was the #1 most-used and most-trusted stablecoin of all the cryptocurrencies for 20–30 years before a nuclear WWIII/whenever-the-USD-loses-its-reserve-currency-status. The two most important aspects of getting your stablecoin to be #1 are community and distribution. Can you build a massive, intelligent, and passionate community that is bigger than any other stablecoin project out there? And then distribution- how do you get a massive amount of users- far more than any other stablecoin project out there? How can you get Amazon to use your stablecoin? How can you get Overstock to mandate payment in your stablecoin? How can you get FB or Snap to use your stablecoin? How can you get the Apple App store to make your stablecoin the only payment they will accept for in-app purchases? And how can you get that usage to continue even when the US Government makes it illegal for any US business to use your stablecoin?
The most important aspect of this process is: time. Planning for a 20–30 year process is enough time to get most of the crypto kids on board with you (if you are #1), as well as enough time to brainwash the population that your stablecoin should in fact be worth $1 always and forever. And then you just gotta get ‘lucky’ that a nuclear WWIII destroys the global economy and maybe a large chunk of the US and China, ravaging people’s faith in the dollar/yuan worldwide, causing them to flee to something else- and making your stablecoin product & community & distribution & worldwide acceptance so great that they choose to flee into your stablecoin instead of gold (so yes, you’re going to have to get as lucky as the US did to get the USD to be the reserve currency of the world).
Realize that you will also need the financial firepower to stabilize the stablecoin for 20–30 years (while the public is being brainwashed) and then be able to continue to maintain that peg throughout WWIII and for some small period of time after (~10 years), while those remaining try to pick up the pieces and rebuild society. So you should have 20–30 years of fiat currency firepower + ~10 years of BTC/Gold financial firepower…bc when the world loses faith in the USD, the purchasing power of BTC/Gold will skyrocket (in terms of dollars) and they may be the only currency that people accept. (Side Note: The USA earned its gold being a massive supplier of WWII- maybe you will need to be the biggest supplier of something/whatever in a Cyber WWIII and only take payments in your stablecoin- which means if countries want your services they must have acquired your stablecoins. It is easy to have things other countries want when you’re a nation and control natural resources and an army. It’s hard when you don’t control any of those things.)

Ok so let’s assume we know that nuclear/cyber WWIII will be happening in the next 20–30 years and you want to be the #1 stablecoin for all of that time in order for your stablecoin to be the #1 world currency after that. How would a smart team go about it?

You have to get your stablecoin ‘into the pockets of the consumer’. We saw the social media ideas like FB, Twitter, Instagram, and Snap flourish because they were able to ‘get into the pocket of the consumer’ by way of an App on a mobile phone. It was easily accessible, had a quick response time, and provided value to the user. You have to either get ‘into the pocket of the consumer’ or get ‘onto the body of the consumer’. The way that makes the most sense in my brain is to do it via an eWallet application on a mobile phone. But maybe you have better information than me and you think it would be better for a consumer to always have their stablecoin on them by paying for people to get tattoos of their stablecoin QR code on their hand, or maybe you pay for their T-shirts with their stablecoin QR code on them, or maybe you pay for your users to get a wallet/purse with their stablecoin QR code printed on it, or maybe you do it through a ‘mobile object’ specific to your stablecoin such as a 2FA Token Device that people use to log in to their work computer. Whatever way you do it, you want to make sure that your users have easy, frictionless, and fast access when they want to ‘pay/receive payment’ with your stablecoin.
Let’s assume the ‘eWallet Mobile Application’ is the winning play here because everyone has their smartphones on them at all times. You would also need some way for all of these eWallets to talk to each other- they would have to sit on the same network so Alice can pay Bob with her stablecoin. So just like any other cryptocurrency project you’d have a P2P Networking layer on the bottom of the stack, some consensus layer on top of that, and then the Application layer on top would be where the eWallets would sit- nothing original there. The second picture here shows how Cosmos views the stack. And you would have the stablecoin tokens live natively in this eWallet and be controlled only by eWallets- not command line wallets nor desktop wallets- we don’t want to make it confusing for the user.
Add in a massively-scalable Decentralized Exchange that integrates with all digital currencies. It would need to be high-throughput, minimal fees, high liquidity (to prevent slippage costs), and high security- where that security is enabled by a wide, decentralized network of miners/validators (who should show up if you have the #1 stablecoin community from Point 3 in the previous section). You should have the DEX because those users with eWallets and your stablecoin will probably want to buy/invest/sell digital currencies quickly, easily, and cheaply. Think of your stablecoin as the ‘Amazon Customer Service + Product Selection’ aspect, and then your DEX as the ‘Prime membership’ aspect which gives people a more robust ‘Amazon Customer Service + Product Selection’ experience, so they use it a lot more. I don’t think a stablecoin can win without a DEX- because that will be the first thing a competitor (who is a real competitor) will try to create.
I don’t think fiat cash-in/cash-out points are a possibility in our stablecoin scenario because there’s no way to vet that a 7–11 cashier received the 5 Fiat Bills that they credited to that user’s eWallet- there’s nobody for that 7–11 to answer to (since we want to have a decentralized, permissionless, community-owned stablecoin ecosystem). There’s nobody who can threaten the use of force for noncompliance (& can then utilize that force) if someone is lying about how much fiat they actually took in and then credited to someone. Only nation-states can use the threat of force effectively (fines, jail time, revoking business licenses, criminal record) to get the behavior they want. If you’re a stablecoin project with only an eWallet and a DEX- and you don’t have a court system/police force/ jails/military- then you have no credible threat of force to get fiat cash-in/cash-out operators to behave correctly. So the stablecoin will only be able to be present in the digital world.
And then maybe make your eWallet like an AliPay or Wechat Pay eWallet- both of which are ‘lifestyle’ eWallets. Alipay can do: payments, ‘red envelope’ gifts, top-ups, card repay, ride share credit, find nearby merchants/special offers, look at/buy movie ticket, pay for utilities, put money into investment products, look at/buy airplane tickets, look at/buy music, buy e-commerce items, track packages, pay for gasoline, receive money, keep tabs on family, donate, receive coupons, look at/plan a trip, buy travel packages, split bills with friends, exchange currency. WeChat Pay can do: payments, mobile top up, wealth management, loans, pay for utilities, mobile gaming, buy in-game currencies, search for public services, search/buy tickets for events/movies, card repay, ‘red envelope’ gifts, split bills, give to charity, schedule hospital visits, buy medical insurance, hold identification, book/checkout from hotel, hold hotel key cards, order taxi, food delivery, get house cleaners, buy clothes, phone calls, video calls, translate text, chat, and social media. Here is more info on eWallets in China. When Chinese are out on the street and they scan vendors’ QR codes to pay, that is called an ‘offline e-payment transaction’- because you are not sitting at home on your computer or buying while browsing Taobao on your smartphone. The Chinese love Alipay/WeChat Pay for the above types of transactions- because of their speed (But this is for the population in the cities. 40% of the Chinese population still lives in the countryside and cash is the most-used method of transaction there). Alipay also has something called ‘Offline QR Pay’ where QR code-based payments are made within 0.3 seconds without the need for internet connectivity by neither the buyer nor the seller.
Go and live in China for 1 year. Use WeChat Pay and Alipay. Learn some Chinese and interview 3000–5000 WeChat Pay and Alipay customers. Find out what they like. Find out what they don’t like. Find out what problems they have with the current eWallet products. Try to live 1 month in each of the 12 biggest cities in China so you get an understanding of how they all use it. If you’re from the US you will never understand what eWallets mean and why they’re important until you go live in a place that has them. I already spent a month living in China- I understand why they’re awesome.
You’re also going to need to add some incentive for businesses to accept payments on this eWallet network. In Asia, Alipay and WeChat Pay work fine. In the US, Visa, Mastercard, & Amex work fine. For the whole world, cash works fine. What reason is there to switch? Maybe decreasing US merchants’ credit/debit card processing fees from 3% down to 0.1% could give them enough of an incentive to join your eWallet network. In Japan, Line Pay is getting merchants to convert to mobile QR payments with free transactions for 3 years. WeChat Pay and Alipay both currently have free P2P Money Transfers. They both charge a 0.1% tx fee for a user to withdraw money from the app to their bank account (meant to encourage users to keep the money in their eWallet). Alipay Merchant accounts are charged 0.6% tx fees, and WeChat Pay Merchant accounts are charged 0.1–2.0% tx fees. Both of these are much lower than what China UnionPay has traditionally offered. And all of them are less than what US Payment Processors charge. Next, the businesses in China are used to getting lots of data on their users from these eWallets, which they can then use to sell/remarket to them. That’s very powerful and a big reason why Chinese businesses switched off of cash. Will they get that same data from eWallet payments of anonymous, decentralized currencies? I don’t think so. But US merchants may not care about not getting that data, because Visa/Mastercard/Amex were not giving them any of that customer data before, anyways- and they were still charging them massive fees! (Visa/Mastercard/Amex are actually taking that data and re-marketing credit card products to customers based on what they bought). The fact that China already has very cheap tx fees for merchants, plus the fact that Chinese merchants already get a ton of customer data from their current centralized eWallet payment systems makes me very confident that our stablecoin eWallet with low fees and no customer data transfer will only have a chance to win wherever Visa/Amex/Mastercard are widely used (aka NOT China). I think China is the last place our eWallets will win.
Finally, you’re probably going to have to add one more ‘killer app’ on top of the ‘stable coin + eWallet + DEX + lifestyle eWallet’ combo. I don’t know what that is. Does it have to be ‘Facebook integrated with an eWallet’? Possibly. Could it be the Oasis from Ready Player One integrated with your stablecoin and your eWallet and your Backend DEX? Possibly. But more than likely it will be something that the world has never seen before and the world really needs it to function in the new digital currency paradigm (and it can only function in the new digital currency paradigm). If you’re good enough to disrupt the USD as the global reserve currency then you will know what that is. I would actually classify ‘solving the rural eWallet problem’ as worthy of the requirement of the ‘killer app’ designation. Rural e-payments are hard for the fact that those are areas that don’t have internet. And I don’t think a solution like FireChat’s Mesh Network would work- where basically everyone stores all offline messages and they are beamed to other FireChat users nearby in a P2P manner, and then they’re broadcast to the world by the first person to connect to internet at some later point. That can’t work for eWallets because you could come into the village as a foreigner, double-spend your stablecoin many many times before anybody from the rural village arrived somewhere with internet and broadcast all your payments to the world and then everyone sees you did not have enough stablecoin for all of those purchases. Or….maybe it could work. What if we treated all the internet users of eWallet services as the ‘main chain’. And then we treat all of the offline rural villages as independent ‘side chains’. They would have their own ‘village-only’ ledger, where they can transact with each other without internet by using mobile phones with Bluetooth and the FireChat Mesh Network technology. But how to get them their digital stablecoin in the first place? Alipay and WeChat pay could send a representative to buy everyone’s physical yuan with a 1:1 swap for digital yuan to be put in their respective eWallets. This representative could then be the link between the village ‘sidechain’ without internet access and the urban ‘main chain’ with internet access. They could come to the village monthly, receive a copy of the village’s ledger by being in close proximity to any of the villagers and having it sent to them over the Bluetooth FireChat Mesh Network technology, and then take that data back to any place that has internet, and it will be automatically appended to the main-chain’s ledger: kind of like closing a Lightning Network Channel on Bitcoin. In a decentralized P2P eWallet Network this solution could still work. Instead of Alipay/WeChat Pay representatives going to villages it would be anybody that wants the decentralized P2P eWallet network to succeed & grow that could do it. To get the villagers onto the decentralized P2P eWallet Network, that person would go to the village and buy up all of their physical fiat in a 1:1 swap for a stablecoin/digital fiat. If the villagers don’t want to do it because they don’t trust the person or the technology, that person could offer a 1:1.3 or 1:1.5 or 1:2 or 1:5 swap of physical fiat for the stablecoin/digital fiat (meaning 1 Physical Fiat for more than 1 stablecoin/digital fiat). The villagers’ purchasing power, relative to each other (within the same village), would stay the same, but it would increase relative to those in the urban areas (who are also hopefully using the same stablecoin/digital fiat). If that village doesn’t even have smartphones to utilize the P2P eWallet network, that same ambassador could give everyone cheap smartphones and teach them how to get connected. All of these actions would be considered ‘speculative philanthropy’- using your own money to get others onto the network/to better the network with no immediate plan for an ROI on your investment- you just hope it causes the value of your own holdings to increase somewhere down the line. This is exactly what Roger Ver did in paying for Bitcoin ads on Free Talk Live in 2011. I also think this is the type of investing that all of the investors in Lightning Labs are taking part in. You can read more about Alipay’s and WeChat Pay’s plans to reach rural users here.

The reason why I say that you have to have to do all these things + ‘get lucky’ that a nuclear/cyber WWIII breaks out at just the right time is because the current USD virtuous cycle is the most powerful idea that this world has ever seen. It allows for enslavement of entire countries’ natural resources via World Bank and IMF Loans, it allows the US to decide who can and cannot have nuclear weapons (most of the time- NoKo got lucky they have China & Russia backing them), it allows for freedom and opinion purchasing of 99.9% of the population who do not have High Enough Self-Esteem nor High Enough Critical Thinking Skills to say no to student loans or mortgages because society and marketing is telling them ‘that’s just how the world works’. It allows for the largest military ever seen in the history of the Earth to be financed via miniscule inflation affecting the home country (because we outsource it all to everyone purchasing our debt), and it allows for entire countries’ laws/trade deals to be purchased by corporations. So you gotta be really awesome and really lucky to have a chance at dethroning it. Right place, right time, right product, right amount of luck.

Stablecoin Hypothesis: If you don’t have a military you don’t have a stable currency.

I think this was true before Bitcoin. I do not think it’s true after Bitcoin. We can now have digital trust in our money. I think this is the current hypothesis:

Stablecoin Hypothesis: If you don’t have a military, you can have a stable currency, but only if it has complete anonymity, unbreakable privacy, is unable to be seized by those who do not have the keys, users must be able to run a node on their cellphone without detection, and it must incorporate everything we talked about above. Success of this will be harder than anything a human has ever done on Earth before.

That sounds better.

Stablecoin Hypothesis 2: If you have raised VC money for your stablecoin and have made your name/face public, you don’t actually want your stablecoin to win- you just want to say ‘you tried’ and got backing from brand-name Venture Capitalist A, B, and C, to boost your resume.

Because, if your stablecoin starts to win too early (before the ‘lucky’ WWIII) and international trade (& oil) starts to be denominated in your stablecoin, then you’ll probably be Killed. It’s not smart to challenge the most powerful force ever seen on Earth (the US Gov & military). Why do you think Satoshi is completely anonymous? Why do you think he left Bitcoin when Gavin went to give a talk on Bitcoin to the CIA in 2011? He knew that someday- maybe not right away, but in 50–60 years, Bitcoin could be challenging the dollar as the de-facto currency of international trade and oil….and he wanted no part of it being known it was him, and he wanted no part of his family knowing it was him, nor his family being known. And above, when we were talking about everything that went right to get the USD to be the de-facto currency of the world, we talked about Saddam Hussein selling his oil for Euros and Qaddafi planning to only accept a Pan-African gold-backed dinar for his oil- and they were both Killed shortly thereafter.

This isn’t the bubble of Silicon Valley where you’re just trying to out-innovate FB, Snap, Slack, or MSFT and the only thing they can do is try to out-innovate you back (or sue you a lot to have you pay a lot of legal bills). This is the real world, a world where your stablecoin idea does not come with a military, and if you don’t play by the rules of those who do have one, you will be killed.

But I think if you still wanted to go for it and still wanted to win, it is possible. You’d want to be completely anonymous, like Satoshi or a Team Rocket (not from Pokemon), release your whitepaper and currency for free like Bitcoin did (meaning don’t meet any VCs in person), have it be an order of magnitude** better than anything on the market today in order to acquire a small number of core supporters who LOVE your product and will evangelize it, have it be an order of magnitude** better than bitcoin so that the media will talk about it, have you (the creator) be fluent in multiple languages (probably Chinese, Japanese, Korean, English, and Arabic) so you can help to build the communities in all those languages because you will need a community that is much bigger than Bitcoin if you are actually going to win.

** — the ‘order of magnitude improvement’ will include the eWallet + DEX + lifestyle eWallet, plus everything else we talked about up above, plus your stablecoin currency, plus other things that are in your brain and the world has not thought of yet.

Stablecoin Hypothesis 3: B-But Colton, all the big name VCs are investing in Stablecoins. You’re definitely wrong….r-r-right guys?

No. Stop. NO. They don’t understand the world as well as I do. They don’t have the correct Information. Their Critical Thinking Skills are probably above-average, but that doesn’t mean anything if they’re drawing conclusions on insufficient information. I have the correct Information and I have Awesome Critical Thinking Skills. I love reading about the world and observing how the universe works and understanding how everything fits together. I look around around at all these Stablecoin projects people are investing in and I’m thinking: “WHAT? Does anybody understand how the world works??? HELLO??? Is there anybody out there with real critical thinking skills? Am I the only Genius alive??? Is anybody else seeing what I’m seeing??? ” We’ve got people thinking a Stablecoin backed 1:1 by fiat USD is going to win out against the US Government, the US Military, and the very fiat currency that is backing it. SERIOUSLY? They might say that “we’re actually just trying to be a stablecoin for traders on exchanges”. But in our stablecoin thesis at the top, we know that a stablecoin cannot be stable unless it is the de-facto currency for international trade (& oil)- which means you have to defeat the US Goverment, US Military, and the USD (which backs your currency) in order for your stablecoin to actually be ‘stable’. Has anybody creating/investing in these stablecoin projects learned to just sit and understand the universe by observing and thinking critically about the information that is out there, instead of learning out of a textbook and following what everyone else is doing??? I’m glad Preston Byrne put out new Information into the Universe, his ideas made a lot of sense to me.

Conclusion

So we have two old ideas paired with two new ideas, paired with a great understanding of how the world works, to create the most robust stablecoin thesis in the world:

You can’t tell the market what the price of your coin is, the market will tell you what the price of your coin is. (P Byrne)
The stablecoin peg will break when there are no new investors because it leads to the market-making bot eventually running out of money (P Byrne)
Your stablecoin can only be valued at $1 if it has the global consensus of the international trade (& oil) community that it is worth $1. Until this happens it’s value can only be $0. (C Robtoy)
If you don’t have a military then you cannot (99.99%) get your stablecoin to be the de-facto currency for international trade & oil. (C Robtoy)

We know that to create a stablecoin that unseats the USD as the de-facto currency of international trade (& oil) its creator will have to understand:

The geopolitical history of the US over the last century.
The process by which the USD became the de-facto currency of the world.
The alliances, history, events, and geopolitics that have kept the USD as the de-facto currency of the world.
Understand Middle Eastern History over the last century as it relates to US geopolitics with China, Russia, Iran, Saudi Arabia, and Venezuela.
Our monetary and banking history, as a country, back until at least the early-1700s. (mostly to study the geopolitical/political moves)
The monetary and banking history of the world since the beginning of time.
What happened to those who tried to challenge the USD and had begun to make progress.
How powerful the virtuous cycle and network effects are that keep the USD as the number 1 currency.
Who was buying our debt at different points in history and what were the incentives for them to do it.
How having a military makes it easy to create incentives in your favor, and how not having one makes it nearly impossible.

And that stablecoin must have these attributes surrounding it:

#1 Most-Used Stablecoin
#1 Most-Trusted Stablecoin
#1 Most-Intelligent, Most-Passionate, and Largest Community
Use/Acceptance by large corporations to get massive distribution to their userbase.
Have a 20–30 year plan of how to integrate your stablecoin into society (aka brainwash society that it should actually be $1).
‘Get lucky’ that a nuclear/cyber WWIII comes to fruition, destroying the global economy (and large parts of the US & China), leading to people fleeing those two currencies into something else.
Have the fiat currency firepower to stabilize the stablecoin for the 20–30 years before the nuclear/cyber WWIII, and enough BTC/gold to stabilize it for ~10 years after the nuclear/cyber WWIII. This is all done to build up trust and the chance of your stablecoin winning by utilizing the Lindy effect.

And these products/services must find a way into your system as well:

Getting your stablecoin ‘into the pockets of the consumer’.
Having a network for all of your eWallets to talk to each other.
Add in a massively scalable DEX for the eWallets to plug into. (High-throughput, minimal fees, high liquidity, and high security- enabled by a wide, decentralized network of miners/validators)
No need for fiat cash-in/cash-out points.
Learn how to create a lifestyle eWallet app (like Alipay or WeChat Pay) for the world.
Live in China for 1 year to interview customers about what problems they still have with their eWallets.
Add incentives for businesses to adopt a payment system via your eWallets (most likely that will be lower credit card processing fees).
Add in one more ‘killer app’ because you’re probably going to need it. ‘Solving the rural eWallet problem’ would count because that can be applied to a large percentage of the world’s population.

And if you are able to have success doing some of the things above, your stablecoin will still probably lose out to the USD for the simple fact that you may not be around the long enough to effectively lead to project for the 30–40 years it needs to be lead. To increase your chances of being around longer you should:

Be completely anonymous like Satoshi or a Team Rocket (not from Pokemon).
Release your whitepaper and currency for free like Bitcoin did (meaning don’t meet any VCs in person).
Be fluent in multiple languages (probably Chinese, Japanese, Korean, English, and Arabic) so you can help to build the communities in all those languages b/c you will need a community that is much bigger than Bitcoin if you are actually going to win.

What is the probability that a stablecoin (without a military) can accomplish all above 28 points and defeat the USD (and US Goverment and US Military) to become the de-facto currency of the world? ~0%. It is so close to 0 that it’s more 0 than anything I’ve ever thought about before.

But, it is not exactly 0.

Thanks to my brain for the Awesome ideas and Awesome critical thinking skills.

Final idea: I don’t know if a great team and 1 superhero could get this done. I think it would take a whole team of superheroes, like the Avengers, to pull this off. Could a team of Roger Ver, Vitalik, and Dan Larimer get this done? Maybe. Or, it could take more, maybe much more- it could take all the top founders of the top 100 cryptocurrency projects to all come together to create a large enough talent nucleus, and large enough community, to get this done. I think that seems more likely to result in a ‘win’. But can so many different humans with so many different ideas and brands come together for a long enough time (30–40 years) to get this done? I’m skeptical.

Final final idea: You, as the stablecoin creator, don’t actually need to create everything we talked about above- you can implement bits and pieces from what other cryptocurrency projects are already creating. I know one cryptocurrency project doing numbers 3 and 4 from the “attributes surrounding it” section of the conclusion, as well as numbers 1, 3, 5, and 7 from the “built around your stablecoin” section in the conclusion. That’s pretty good- that’s 6 out of the 28 points already being complete for you. I expect more projects to also take to building many of the pieces that you need in the future.

So what will investors do after reading this?

Realize they have a better understanding of the universe now, see that all stablecoin projects (for a long time) probably will not win (because they are not addressing all 28 points above, nor are they backed by a military), and save their time by looking at other projects instead.
Realize they have a better understanding of the universe now, see that they can still utilize their great Brand Name/Twitter Followers/TV Appearances to draw in more Greater Fools to sell their stablecoin investments to, in order to make money for their LPs.

I think 5% will do option 1.

I think 95% will do option 2.

That’s just how the world works.

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Bonus Content

Graphs

I used this data set and this data set together to construct the graphs below. I got both of them from this source, where there is more data for you to look at. We don’t have any data of OPEC Treasury-Security holdings before the 1974 Saudi deal. These graphs show the data for the decade after the 1974 deal.

Another important piece of info that I may use later.

[July 6, 2018 Edit]
Here is an email exchange I had with someone about the ideas in the above Track. I think it will give you another Perspective and some good Information:

Email 1 (to them from Me):

“Hey _____,

[…..]

I’ve made a lot of progress in understanding stablecoins, more than anyone else in the world.

I took 2 of Preston Byrne’s ideas and added 2 of my own ideas to create the most comprehensive thesis in the world that pertains to Stablecoins:

1. You can’t tell the market what the price of your coin is, the market will tell you what the price of your coin is. (P Byrne)

2. The stablecoin peg will break when there are no new investors because it leads to the market-making bot eventually running out of money (P Byrne)

3. Your stablecoin can only be valued at $1 if it has the global consensus of the international trade (& oil) community that it is worth $1. Until this happens it’s value can only be $0. (C Robtoy)

4. If you don’t have a military then you cannot (99.99%) get your stablecoin to be the de-facto currency for international trade & oil. (C Robtoy)

https://medium.com/@coltonrobtoy/stablecoins-f52713c0d001

What do you think of these ideas?”

Email 1 Response:

“ Hi Colton,

[…..]

Firstly, I’m speaking for myself, not the Reserve team. They have spend infinitely more time working on this problem and I think that even they are humble enough to acknowledge the enormous challenges before them. I personally agree that a straight stable coin, the likes of which you describe, may not be achievable.

I think this team can manage points 1&2. I don’t think #1 is in dispute. That’s what the open market operations are for and that’s why you need a robust, liquid, and fully transparent secondary market for differential pricing.

#2 is IMHO feasible only in the sense that it eventually becomes unnecessary if your coin reached broad enough adoption on its own where its medium of exchange value component overtakes its use as a store of value. I’m thinking of something along the lines of a seigniorage shares model where the demand for shares drives medium term adoption but where demand for the currency eventually drives adoption in the long run. Figuring out how to survive the short and medium run (I don’t know what this time frame would be — maybe 5–10 years or more? — but what matters more is that you have a way to defend the peg until such time that is independent of the seigniorage shares).

#3&4 I’m not sure I follow your logic. I also don’t see this as a binary proposition for adoption. The value of a pegged currency is a function of risk and arbitrage, not the adoption of the currency (in the medium run). Long term, there needs to be a land grab, I agree. You can’t run a currency peg forever without some sort of mandate to force a part of the market to use your currency. You can’t just invent demand for it by fiat if your aren’t a sovereign entity with a monopoly over the use of force in your domestic market AND the capacity to enforce the use of your currency (this component is more becoming more nuanced).

My opinion, in short, is that stablecoins can work for only a certain period of time as hold overs to some other value proposition. Value can accrue in the currency for its stable properties long enough to justify speculation in its shares and use cases can expand fast enough to create a market of companies and products comfortable/confident in its use. I don’t want to go into much more detail because I’m afraid I will end up confusing my own ideas with the team’s, which is why I must again reiterate that these are only my opinions and don’t necessarily reflect the team’s views.

Happy to keep the convo going. By the way, I do remember our call and I remember you guys being investors in basecoin or maybe you never made the investment?”

Email 2 (to them from Me):

“[…..]

Yes your #2 info is the same issue I have (getting a coin to survive the transition from ‘medium term’ to ‘long term’)- and I don’t think a stablecoin peg can reach broad enough adoption before the peg breaks if the coin doesn’t solve problems #3 and #4 in my hypothesis. (which will make sense after reading).

Re: Basecoin investment, yes I was very BULLISH up until about a month and a half ago. Then I got much more information into my brain about how the World works (much more than anyone else who is currently creating the stablecoins), as well as information on how the Nubits Stablecoin broke, & I became infinitely BEARISH on them.

[…..]”

Email 2 Response:

“Let’s entertain your hypothesis that a peg cannot survive without 3&4. Give me a universal example of what would kill it if it got big enough? For example, in a domestic market, you could say that the sovereign would simply ban its use and put anyone to death if they were caught using it, shut down all exchanges, etc. but if the currency is fully decentralized this still is not a sure solution. Granted, I think this example would be sufficient enough to warrant not investing in something like this, but a stable coin is an international reserve unit and it makes sense that many sovereign entities would be more than happy to accommodate it if it mean Capital inflows. In other words, there is plenty of wiggle room for the stewards of such a system to serve many masters (this is a game theory sweet spot).

We are rapidly moving towards a fully multipolar world order where corporations, rogue terrorist organizations, non-profits, etc. can have a meaningful impact on how the wealth and power is distributed. I disagree with you that this is “impossible.” It’s just difficult. I believe the Reserve team has a shot. I’m not familiar with anyone from Basis so I can’t compare those two, but I think we both agree that their model is naive and doesn’t have the ability to get to scale before coming under speculative attack or simply losing market trust.”

Email 3 (to them from Me):

“You have good thoughts. 100% agree with you that a Stablecoin cannot be killed if it gets ‘big enough’.

I believe no Stablecoin will get ‘big enough’ because no Stablecoin is addressing what really matters: Will the Saudis price their oil in it? That’s the only thing that actually matters.

Or more generally: Will the biggest producers of ‘fuel’ for the world price their resources in it?

You know about Bretton-Woods, I heard you speak about it on the podcast. Bretton-Woods made it so countries had to keep a small reserve of USD to buy their own currency if it’s exchange rate fluctuated more than 1% off the market rate vs the USD. That was good for the US, we had some small demand for dollars so we could print more (even though it was supposed to be backed by gold) to fund the Vietnam war and social programs and not have too much inflation (because everyone thought those dollars they were buying were still backed by gold).

Then, countries got smart and didn’t believe we could fund all those things with the gold we had (which meant we were probably printing more dollars relative to our gold) & they started to cash in their USDs at $35/troy oz to get gold from us. Nixon knew the Ponzi scheme was up and didn’t allow anyone to redeem USDs for gold anymore after 1971.

So we had a floating exchange rate from 1971–1973, meaning demand for the USD would be decreasing because the world knew it was not gold-backed anymore (not good when we’re trying to fund the Vietnam War). So to get some more demand for the USD, Nixon went to the Saudis (world’s largest oil producer) in 1974 and said “Hey: price your oil in USD, only accept USD for your oil, and get all your OPEC buddies to do the same, then use your oil profits to buy US Treasuries and military equipment, and we’ll set up military bases in your country to protect you guys (the House of Saud) from Israel and Iran”. And the Saudis said: “Wow, that’s it? You’ve got a deal”.

And this was genius because now every country had to buy the massive amounts of USDs we printed because it was the only way those countries could buy oil. This gave us a massive global demand for new USDs we wanted to print. There would always be a buyer for them- so there won’t be any big inflation effects- so let’s print more and fund whatever we want.

And not only that, but then the largest oil producers in the world take their USD profits and buy our Treasuries, allowing us to print the money to fund the massive military to protect the Saudis and also go on the offensive if anybody tries to price their oil is any currency other than the USD.

So in essence: we are able to protect our ~infinite USD demand (which allows us to live a life here in the US that has never before been seen on Earth) by having other countries buy our debt, because they know every other country has to buy USD in order to buy the oil their country (so our debt is the safest place in their world to park their money), which allows us the power (and funding) to have the military keep this virtuous cycle in play. There has never been a better Ponzi scheme.

So, the reason I don’t think a Stablecoin without a military can win is because: What leverage do they have in negotiations with Saudi Arabia to get Saudi Arabia to abandon the USD in favor of their Stablecoin? NONE. We’ve protected the House of Saud for 50 years! (In Saudi Arabia, power is passed down to males of the ruling family, just like the Kim family in NoKo)

Stablecoins are about geopolitics, history, and military might- not ‘algorithms’. And I’m the only one in the World that understands this.

Those are the basics of my ideas.”

Email 3 Response:

“I agree that the Petrodollar reflects geopolitical power dynamics, but that doesn’t forbid other countries from pegging to the dollar. It’s unclear to me why you are holding ERM’s to the standards of a global reserve currency. The entire point of a stable coin is that it can’t compete with the large, international currencies on its own so it piggybacks off their track record and looks to generate a symbiotic relationship with their market. I think you are conflating being a global reserve currency with being a stable coin. Your point comes into consideration in the long term where the coin needs to graduate to its own value prop though many other variables and conditions leap out at that point.

The bottom line question IMHO is ‘What does it take to convince a market of human speculators not to bet against your willingness and ability to buy your currency at above market value for an indefinite period of time?’ There is no proof available. This is, in some real sense, a permanent gamble.”

Email 4 (to them from Me):

“You’re right. I am assuming that teams are trying to become the reserve currency of the world and kick out the US Dollar from that position with their Stablecoin product. That is where point 3 of the Hypothesis came from:

3. Your Stablecoin can only be valued at $1 if it has the global consensus of the international trade (& oil) community that it is worth $1. Until this happens it’s value can only be $0.

Is that not true? Are all these teams, instead, all vying to be the ‘most-used stable currency of the crypto fans’- and that’s it? Is that why investors are giving them millions of dollars? To be #100 on the most-used world currencies list and call it a win?

I don’t buy it. I know they are are trying to be #1 and beat the USD. I know that because investors would not be giving them money for any other story. Basis raising $133M on a mission to NOT be the reserve currency of the world? I don’t buy it. They even say beating the USD is their plan in their whitepaper: “Imagine that one day, Basis is so widely used as a medium of exchange that it actually starts to displace the USD in transaction volume.”

All Stablecoin investor pitches go something like this: “We’ve been thinking about Stablecoins for a long time. We are different from all other Stablecoins because A, B, C. Our ideas are better than the other Stablecoins because A, B, C. Here is why our team is awesome: A, B, C. Oh, and by the way, after we’re the #1 Stablecoin, we could challenge the dollar, and here’s what our token would be valued if we win that battle.”

Basecoin: “Imagine that one day, Basis is so widely used as a medium of exchange that it actually starts to displace the USD in transaction volume.” (Page 18, Whitepaper)

Reserve.org Homepage: “The world’s digital reserve currency”

Carbon: “As Carbon expands, the dollar will become more vulnerable, as it becomes a centralized point of failure in a decentralized solution. Carbon aims to eventually exceed the dollar in terms of perceived trust.” (Section 5.4, Whitepaper)

Now let’s look at the 1-to-1 backed Stablecoins (Stably, Tether, TrueUSD) that we know will not be competing with the USD in the ‘long term’ (because how can they compete with something they’re backed by?). I’m happy to look at both sides of our argument:

How do they compete in the world when the Federal Reserve releases the USD (which they are pegging to) on the blockchain as a Crypto-USD? CUSD would be redeemable for $1 in physical USD at any place that has a cash register. (To understand this phenomena you’d have to understand eWallets in China- I have some links in my paper). I think many crypto folks would move to CUSD because you could have more trust that the CUSD “peg” would never be broken (“peg” because it’s pegged to itself). So any other Stablecoin that has a >0% chance of the peg breaking would become so illiquid that the “reserves backing it to support the peg (either by the centralized company, or the ‘market participants’, or by the reserves in the smart contract that have to be used to support the peg)” would eventually run out and the Stablecoin would fail. Could the Federal Reserve aid in doing some things to break the pegs of those Stablecoins so everybody flees to CUSD? Sure. And then at that point, everyone being born, and everyone joining crypto (which will be most of the world’s population, since we’re so early) will be using CUSD as normal as we use fiat today- with the belief that that CUSD is, and always has been, worth $1 physical USD. (Regarding the Federal Reserve breaking the pegs of Stablecoins: I think the first ones they would go after are those that are transparent with how much they have in reserve to back up that peg, because then the Fed Reserve would know exactly how much they would need to short in order to deplete that reserve.)

I have high conviction on my ideas. I feel like I can see things that nobody else in the World can see. I think that these Stablecoins will become a very serious issue if they come to be used by a few million people in regions of the world with inflation problems and then the ‘market’ realizes that the issuance of CUSD makes a Reserve, or a Basis, or a Dai, superfluous. At that point, the trust in the pegs of those Stablecoins will become fractured, and all the uninformed will be either racing to exit to CUSD as well, or they will see their small life savings go to 0, as they are among the last few to realize it’s time to get out of that Stablecoin.

I really liked Nevin’s ideas. I think he has great intentions. He’s the only Stablecoin founder I’ve heard of that said: “Look, as Stablecoin founders we have a great responsibility to keep disadvantaged people’s Stablecoin life savings in tact, because if they lose them all on our Stablecoin, their trust in cryptocurrencies will be broken forever (paraphrased)”. And this is where the incentives are mis-aligned. Early investors in stablecoin projects can use their big Twitter followings or TV connections to make TV appearances about how they find “xx Stablecoin project interesting” (which they’re already invested in). Then the public hears this and they tell all their friends to buy in, while those early investors are dumping their bags on the Greater Fools. And nobody is going to understand Stablecoins won’t work, until a lot of people lose their life savings in them.

So I’m here to use my Genius and my Ideas to give the Information to the Universe that: Stablecoins need to be built to out-compete the USD from Day 1. Because if they have no plan for that, CUSD will out-compete them easily and many millions of lives will be ravaged. And before they can out-compete the USD from Day 1, they have to have solutions for the 4 pillars of the Stablecoin-Oil Hypothesis:

1. You can’t tell the market what the price of your coin is, the market will tell you what the price of your coin is.

2. The stablecoin peg will break when there are no new investors because it leads to the market-making bot eventually running out of money

3. Your stablecoin can only be valued at $1 if it has the global consensus of the international trade (& oil) community that it is worth $1. Until this happens it’s value can only be $0.

4. If you don’t have a military then you cannot (99.99%) get your stablecoin to be the de-facto currency for international trade & oil.

So I think our only 2 differences are:

1. Do we believe Stablecoin teams want to compete against the USD in the ‘long-term’ and win?

My opinion is: yes. (Obviously the ones backed by 1-to-1 by USD fiat, No, because we know those guys can get shut down just like Liberty Dollars, since they will be holding USD in a Bank acct somewhere and US controls the SWIFT banking network). What is your opinion?

2. If not (meaning we believe these Stablecoins will just be used by a few million people in regions of the world with inflation problems), will there be enough financial firepower to maintain the peg after the Federal Reserve launches CUSD (the competitor of all competitors) on the blockchain? (Independent of whether or not the Federal Reserve tries to break the Stablecoin pegs)

My opinion is: I think not enough financial firepower because most people will transition to CUSD and not use any other Stablecoin. What is your opinion?”

Email 4 Response:

“Your argument is not unreasonable but it’s the same argument for why bitcoin will fail. If the government just decides to create a digital currency, why would anyone use bitcoin? I think the stable coin argument is flawed for the same reasons. As you said, in the long run, you need a plan for becoming a global reserve/medium of exchange and no longer being a peg.”

Email 5 (to them from Me):

“I’m excited for the Federal Reserve to issue it’s own digital currency (let’s call it CUSD). It legitimizes the space and de-risks the space- because now we don’t have to worry about the centralized fiat on/off ramps being shut down by a government decree (Coinbase, Gemini, etc.). If everyone has CUSD in an eWallet mobile app on their phone (like Alipay and WeChat Pay in China) then everyone can just use CUSD to buy Bitcoin instantly on a Decentralized Exchange. So I don’t think Bitcoin will fail because of a government digital currency, I believe the opposite- that it will flourish!

But why would people continue to buy BTC when CUSD is available? Same reason people buy Bitcoin with USD today- because it is “different enough” from fiat to warrant it. BTC has better censorship-resistant properties, and a finite supply (closer to ‘true money’ in a sense)- both of which CUSD will not have (because it’s just fiat currency, but on a blockchain, and redeemable for $1 in physical currency at any store with a cash register).

Stablecoins, on the other hand, (the ones backed 1-to-1 by fiat in a bank account) will be toast once the Federal Reserve launches CUSD. There’s no reason for their Stablecoin to exist. Users will flee to CUSD, so the ‘reserve’ to back the peg will quickly dry up for the users still left, and then all the users will leave once the peg is broken for an extended period of time.

And the Stablecoins not pegged to anything, but sitting at $1 because of “reserve by market participants/reserve by a central team/reserve by cryptoassets in a smartcontract that must be used to keep the peg” will have a better chance than 0% at winning (although most likely still pretty close to 0%), but ultimately can only win if they can take care of Points 3 & 4 in the Stablecoin-Oil Hypothesis

Now if a team could fulfill Points 3 & 4 of the Stablecoin-Oil Hypothesis that would be an interesting coin to watch.

Good thoughts.”

/fin

[August 20, 2018 Edit]
Before this Track was made ‘Public’, Reserve’s Homepage said: ‘The world’s digital reserve currency’.

I made this Track ‘Public’ on July 4 and sent it to Nevin Freeman on July 6.

Less than a month after, Reserve’s Homepage was changed to: ‘A full-stack open currency’.

Interesting.