The Greatest Advantage Handed to the US on a Plate - Stablecoins

By Steven Becker, CEO of UDHC, former President and COO of the Maker Foundation, which helped build Dai, a crypto-collateralized stablecoin.

Stablecoins reinforce the US dollar as the de facto world reserve currency.

The entire world wants to use the US dollar, and the US is trying its hardest not to make that happen by holding it close to its chest like a precious heirloom instead of deploying it as an essential tool of liberation.

The US dollar, like all currencies, is a one-dimensional tool operated by a framework of economic levers constructed through the crucible of lessons of the past. Constrained by jurisdiction and sovereignty, it deigns to discover its full dimensionality and potential. However, through a technological discovery called the blockchain and specifically through the construct of stablecoins, it now literally has the reach and ability to meet every need worldwide.

If unfamiliar, stablecoins are crypto-assets that replicate established forms of value – like currencies and commodities – to create a digital version of the cash you carry in your pocket. Stablecoins are wrappers that extend the functionality of the money they reference, and it's no surprise that nearly all stablecoins have chosen to reference the US dollar. Although providing dimensionality to the most potent representation of value in history, they are not one-dimensional. There isn’t a single construct that encapsulates what it is.

Stablecoins are not just fiat-backed. Their designs include crypto-collateral backed, hybrid, through to algorithmic - with innovations springing up filling the gaps, including the revitalization of Central Bank Digital Currencies (CBDCs) on the back of the apparent potential of stablecoins.

Image courtesy of The Business of Business
Image courtesy of The Business of Business

Circumspect though they are, policymakers are starting to realize new avenues of monetary policy transmission, international payment rails, and growth potential with stablecoins and CBDCs. Moreover, the reach of the US dollar is global and almost frictionless, thanks to the private sector development of stablecoins.

Treasury Secretary Janet Yellen’s recent comments acknowledge the need for a regulatory framework, and it’s encouraging to see US public policy officials recognizing the potential stablecoins can provide should those guardrails be established.

Yet, ironically, stablecoins are developed as much outside as inside the US. As a result, developers worldwide are creating stablecoins, allowing people to improve their lives by accessing these dollar-referenced assets, establishing a clear strategic advantage of anchoring the US dollar as the de facto reserve currency of the world.

Choice, accessibility, growth, pluralism, and decentralization are at the heart of capitalism - stablecoins take this to its natural conclusion. Consequently, all that the US needs to do is realize this potential. Moreover, integrating stablecoins will bolster the current financial systems by mitigating operational risks, providing robustness, and economic and transactional freedom, arguably at the heart of liberty.

None of this will happen naturally, though. Technological and financial adoption takes time, and specific risks will become apparent. Stablecoins require a critical mass of breadth and depth of economy to work. Without it, they will either fail or just become siloed applications of the US dollar incapable of realizing any real utility. Worse, if adoption takes too long, stablecoins will look for alternative reference assets, and the US would lose this genuine strategic advantage.

The stablecoin industry is developing in substance but still nascent in adoption, which is the best time for the US financial system to start adopting the technology. In addition, integrating stablecoins requires offering a spectrum of possibilities allowing access to different levels of tooling and choice that the traditional finance and banking system previously could not provide.

CBDCs are essential, but only alongside stablecoins. They don’t provide a spectrum of capability, and it is unlikely to change once designed. Stablecoins allow choice. Arguably, CBDCs without stablecoins represent the same one-dimensional system but in a different form – digital – which is not an improvement.

The big question is if current regulation still applies to a technology that renders its users pseudo-anonymous? The quick answer is yes. The most private form of transaction is still cash, and consequently, the number one tool used for financial misconduct. Even though authorities are cracking down on this every day, there is a general acceptance that some level of misconduct comes with privacy—a net positive societal benefit. With stablecoins, increased privacy comes with immutability, which cash does not have. Consequently, more people would be able to conduct private but permanently recorded transactions with stablecoins, deterring criminals and decreasing the level of misconduct markedly.

The world is developing financial tooling called stablecoins that reinforce the US dollar as the world's reserve currency. At the same time, transacting with stablecoins will, in all likelihood, reduce the amount of financial misconduct.

Anchoring the US dollar as a reserve currency and removing a material amount of financial misconduct historically associated with it cannot be understated. Consequently, not adopting stablecoin technology would foolishly give up on one of the most significant advantages in history given to the US on a plate.