The race for CryptoTulip of the Year certainly isn’t over.
Yet another technology may slip in at the end: so-called StableCoins.
The idea of a “stablecoin” is to create a cryptocurrency that is pegged to the dollar or some other fiat currency at a stable rate. The goal is to mitigate the exciting uncertainty of fluctuating exchange rates that makes cryptocurrencies difficult to use in the still dominant “fiat” economy. If your Bitcoin is worth $10,000 today and $7,000 tomorrow and who knows what next week, it can be hard to trade for dollar denominated goods or services. How do you buy a carton of milk, if you pay with a token that may be worth a lot more or less tomorrow? Who would want to sell you a carton of milk for this kind of crazy pseudomoney?
Basically, a lot of people would like a cryptocurrency that is worth a set number of Tulips, no matter how the Tulip market fluctuates. The advantages of a free market without the risks of the free market. That sounds good! Does that sound plausible?
Until recently, the most popular StableCoin was Tether, which was supposed to be pegged to the USD. The thing is, guaranteeing a fixed exchange rate requires a (centralized) service that maintains liquidity in dollars and crypto. This variant of “reserve banking” isn’t especially Nakmotoan, and there are fundamental questions about the business model. Just where do all the dollars and coins come from? What kind of rake-off is done to support the system? Is it sustainable?
In the case of Tether, long standing questions about liquidity and ownership (not to mention basic honesty) were exacerbated by the failure to deliver a promised audit. These troubles have come to roost as users walk away. (The Tether coin was trading below the pegged $1 value—kind of a problem.)
There are other “stablecoins”, with varying exchange rates to the dollar. The news is full of recently launched GeminiCoin is backed by the Winklevosses . The big names give credibility and deep pockets to this otherwise pedestrian efforts. The start power and deeply wishful thinking have GUSD trading considerably above the nominal $1 mark (which doesn’t seem either logical or sustainable to me).
As they come and go, these “stable” tulips don’t seem particularly stable .
But more important, they are pretty totally anti-Nakamotoan. Pegging cryptocurrency to the hated “fiat currency” is just wrongity, wrong, wrong, and I challenge you to justify it based on the sacred text . Bitcoin is supposed to disrupt and obsolete the dollar, not extend the value of the dollar into cryptoland.
(We could also note that the GeminiCoin seems to carry extra value due to the patronage of celebrities . This “trustless” system relies on “trust”—trust in famous people. This is certainly not part of the Nakamotoan vision of how economics, or “trust”, should work.)
I have to say that stablecoin technology has both the “this is surely the wrong way to go” and the “this is deeply dubious” vibe that marks a strong contender for Cryptotulip of the Year. Plus, the very spectacle of the instability of something called a stable coin” is so very, very Tulip-y.
Stablecoins have to be in the consideration for the award this year.
- Michael J Casey (2018) The Delicate Psychology of Stablecoins. Coindesk, https://www.coindesk.com/the-delicate-psychology-of-stablecoins/
- Nikhilesh De (2018) Stablecoins All Want to Be $1, But They’re Not Worth the Same. Condesk, https://www.coindesk.com/which-stablecoin-is-the-riskiest-the-crypto-market-is-pricing-that-in/
- David Floyd (2018) Gemini Stablecoin Volume Doubles on Top 10 Exchange Amid Tether Turmoil. Coindesk, https://www.coindesk.com/gemini-stablecoin-volume-doubles-top-10-exchange-bibox-tether-turmoil/
- David Floyd (2018) Bitfinex Is Publishing Data for a Tether Market That Doesn’t Exist. Coindesk, https://www.coindesk.com/bitfinex-is-publishing-data-for-a-tether-market-that-doesnt-exist/
- Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System. 2009. http://bitcoin.org/bitcoin.pdf