Image by Augusto Ordóñez from Pixabay
As far as I know, all the stablecoins out there are pegged to fiat currencies, usually the US dollar. I'm still a relative novice to crypto, so it is possible I have just not yet seen stablecoins pegged to anything else.
But pegging stablecoins to fiat has a couple of key problems.
Stablecoins and Inflation
On a practical level, they don't reflect inflation very well. Actually calculating inflation is a tough problem all of it's own.
My own view is that government figures are works of fiction, manipulated to calm the masses. Real inflation (or personal inflation) depends on who you are, where you live, your lifestyle, and a whole host of other factors.
It is also possible to look at a macro level. The M2 money supply in the US, EU and UK has increased by around 50% in the past 2 years, which is the kind of significant currency devaluation that took down the Roman Empire. We haven't had an increase in productivity, so more money is chasing the same amount of goods and services, which will have to feed through as inflation and/or tax increases.
Stablecoins mostly seem to address inflation through staking mechanisms to increase the quantity you hold, and keep quiet about the fact that each individual coin is steadily decreasing in value.
Stablecoins and the Crypto Revolution
On a philosophical level, it feels to me like stablecoins indicate a lack of confidence in the vision and promise of crypto. By linking their values to fiat currencies, they suggest that cryptocurrencies are just another type of traditional money.
With most fiat currencies coming off the gold standard in the 1970's, the true value of fiat is only a reflection of the stability of the issuing government's social and economic policies.
Fiat has no absolute value, and if a state collapses into anarchy or civil war, or the economy totally falls apart, it's currency can become worthless. There was a famous photo from a public toilet in South Africa (sorry, I can't find a copy with a commercial license) which read "Toilet paper only. No cardboard, no cloth, no Zim Dollars". That shows fiat can go to zero just as much as crypto.
So Why Not Peg a Stablecoin to Bitcoin ?
I guess the big argument against pegging a stablecoin to a cryptocurrency is the volatility of the market.
But the reality is that it seems the level of volatility for the top two or three cryptos is gradually calming down as the market matures. If anything, fiat is just as volatile, only on longer timescales.
With more and more Bitcoins permanently locked up in lost wallets and long-term holdings, scarcity will eventually become the main driver pushing the price up. But it will be a long time before Satoshis hit a value to work for many use cases (for example e-commerce transactions).
Having a stablecoin linked to Bitcoin could be a useful way to get back to the original idea of BTC as a medium of exchange rather than a long-term store of value and investment. It could take pressure off the hash rate and reduce transaction charges in a similar way to other second layer solutions, but unlike them it would act in a similar way to a banknote in the days of the Gold Standard, secured against bitcoin holdings but circulating without those holdings being dispersed.
So what am I missing here ? Is this a crazy idea, a pointless one, or an idea which could happen at some point in the future ?
