The next generation of stablecoins, based on an algorithmically managed balance between supply and demand, aims to reinvent the global
monetary system, but first we need to wait for cryptocurrencies to reach maturity and see how they interact with traditional instruments.
- Stablecoins are cryptocurrencies which, unlike Bitcoin, have a stable price because they are tied to a stable medium of exchange
(a fiat or a crypto currency), seem to be the most obvious way to adopt mainstream cryptocurrencies.
Bitcoin for everyday expenses
It would be really exciting to be able to pay for a coffee with you Bitcoin, but the high fess make it impossible (we shouldn't need to rely on layer2 protocols) - and the constant price changes (as i'm writing it is up 17 19% from yesterday) make you regret to have spent them just a few hours later.
- For money to work optimally it must work as a:
- a medium of exchange;
- a unit of account;
- a store of value.
Cryptocurrencies are having a hard time with the last two points as most of them are deflationary: while values ??go up, there are no incentives to spend them on a daily basis.The volatility also limits their applications to derivatives, Blockchain-based lending, forecasting markets, and other long-term deals.
(And during bullrun periods they even struggle with the first function)
All of these challenges underscored the need for stable cryptocurrencies, or 'stablecoins' as in addition to a guarantee of stability, these kind of cryptos give those looking for a store of value a clear option to escape local banks and evade economies in crisis.This means that people living in countries with unstable economies and strict political regimes will have the opportunity to access a reliable and censorship-resistant monetary system.
Currencies and Maslow Pyramid
According to Maslow's hierarchy of needs, stability and security overlap to form one of our most basic needs, yet there are no truly stable currencies at the moment.
The US dollar is definitely not as stable as we thought; the only resources currently used to maintain the dollar's purchasing power amaze: wars, crimes, bribes, fractional reserves, and so on.
Probably, we will never be able to achieve stability and the only option will be to continue deceiving ourselves:
following what is known as the "black swan" postulate, according to which events are inherently unpredictable and the only value of an asset is the value that most people believe it has.Therefore, most of the current attempts to create stablecoins could be defined as attempts to affirm "currencies of faith".
On the other hand, the Blockchain has already provided us with the tools necessary to instill a new sense of trust in each of us.
Being "pegged" ("fiat pegged token", also digital representation of a fiat currency) is the most essential element of stablecoins,
as this is how the value of the currency is linked to another medium of exchange considered stable, which is generally another currency.
In monetary policy, this is referred to as a currency peg or a fixed exchange rate. New stable currencies cannot appear out of nowhere.To be successful, a guarantee must be created for each coin minted that it can be trusted. It can be US dollars, gold, real assets or Smart Contracts, but 1: 1 guarantees are sometimes not enough, since, if you choose a volatile asset as a guarantee, you should cover all possible price fluctuations. (there are exceptions like MKR who had Eth as a collateral and didn't lost the as much value as ETH when the last one dropped in price)
