The Quest of STABLECOINS — The Way of All Stable Crypto Things
Pt 2 — the Path towards the end of the Dollar Standard? — Blockchain 101
Stablecoins history begins with TETHER, which runs USDT. Originally known as ‘Realcoin,’ it began in October 2014.
Tether’s model was always simple:
It promised that for every USDT, there would be an actual redeemable dollar in the bank somewhere.
The various question marks and legal scrutiny from institutions and governments exposed Tether to many challenges faced over the years from which we can extrapolate really three salient points to make:
1- Tether has shifted its collateral mix but still claims to be fully backed;
2- It remains by far the dominant stablecoin in the market, the fifth-largest cryptocurrency overall (at the time of writing), and has a market cap of nearly $72 billion of market capitalization;
3- The sentiment around Tether in crypto has changed mainly due to the continued existence of Tether and the support by large institutional traders. Where once it met widespread skepticism, now it is treated as one of the “too big to fail” pillars of the crypto economy.
THE BACKBONE OF DEFI
Since Tether in 2014, many stablecoins have followed.
Stablecoins have been crucial in DeFi history. If Tether’s USDT and MakerDAO’s DAI had not worked, it is hard to imagine there would be billions of dollars $ locked up in all these financial smart contracts today.
The obvious place where it all begins is reserve-backed stablecoins, crypto tokens that are buoyed by assets, usually in the form of fiat currency (almost always dollars) — like Tether’s USDT.
This part of the market is established, and it has worked well. Those who want more regulatory confidence than USDT affords tend to turn to the CENTRE Consortium’s USD Coin (USDC).
We assisted in the development of many other stablecoin as well during the years, such as the giant BINANCE with his Binance USD (BUSD) and TrueUSD (TUSD).
For a more in-depth understanding of DeFi, have a look at my previous article:
THE END OF THE DOLLAR STANDARD?
It’s quite clear by now that crypto redefines how people think about value and perceive it.
The consumer price index (CPI) is a way of assessing what the real value of a currency is in an economy based on things people buy.
Basically, the U.S. Bureau of Labor Statistics has people who go out and check the prices of lots of real goods, and it tallies them up. This is how Washington keeps an eye on inflation.
Another peculiar index is the one from The Economist magazine, which does roughly the same thing: tracking the price of just one product around the world (The Big Mac, from McDonald’s), and it works surprisingly well.
This is just a way of showing there’s more than one way to sort out what the real value of money is, and I agree with investment researcher Lyn Alden that has argued the CPI in the U.S. somewhat undercounts inflation by not representing the full extent of the matter.
In any way you wanna put it, we can all agree that is really hard for economists and researchers to agree on an efficient way to track “real prices.”
Nevertheless, it is clear that stablecoins will do better than nation-state tracking systems in redefining what CPI actually means.
A good blockchain product will effectively reflect real product prices in the world, find the right basket that consistently represents real value relative to most people’s lives, and that’s what the decisive stablecoin will peg its price to — not some fiat currency that could go out of control with one bad administration or erratic policies.
ALL ROADS LEAD TO DECENTRALIZATION & A MORE TRUSTWORTHY SYSTEM
Money is just a medium of trust that people have. Trust is something that is very hard for us to measure or predict
A project that will succeed in establishing trust and reflecting the veracity of the real-world data would be completely independent of anything centralized.
Centralization is an attack vector, and all that crypto-assets do is to lay the base for a permissionless and decentralized world to happen — truly empowering its users.
This generational shift won’t happen overnight, and the road ahead is nothing less than full of obstacles, but if, over time, more and more people come to trust the system and more and more people come to use it, it could potentially work out.
End of Part 2
