I'm doing something a little different on the blog today, wrapping up some of the major decentralization news for the week that just passed.
Frankly, this is a useful bit of double duty for me, as it will help with more regular updates for my newsletter as well. But it also strikes me as a good Sunday routine, an excuse to pause briefly to look at the bigger picture. 😉
If there was one overriding theme to the news that stood out to me this week, it was that stablecoins are heating up as an area of innovation and speculative interest. (A stablecoin's value remains constant over time versus the U.S. dollar or some other yardstick, unlike cryptocurrencies like bitcoin that fluctuate more freely.) For a sub-specialty of crypto that might seem sleepy at first glace, there's a lot going on right now.
In particular, the departure of PayPal from the Facebook-led Libra consortium, was a major headline that grabbed folks' attention this week. PayPal notably didn't give a reason for the move, but we can take an easy guess: Facebook, with its perpetual problems on privacy and combating misinformation, may be becoming too much of a reputational risk for some of its partners. That was underscored again this week when embarrassing recordings of Mark Zuckerberg during in-house company meetings leaked out via the Verge.
That said, there are other, more broad-based reasons why stablecoins are worth paying attention to right now. For me, it boils down to two points. The first is a simple matter of fact, the second a personal opinion:
- The question of how best to keep a stablecoin's market value constant is non-trivial and creates profit opportunities for whoever is putting up capital to create supply of the coin. There are various mechanisms for doing this among different projects, from Libra to DAI to Tether and more. It's for now a completely unsettled matter which of these structures is "right," which project will "win" over time, or if this is perhaps a category where multiple coins will find sustainable niches over time.
- Stablecoins are the only real path toward mass adoption of crypto as a tool for daily commerce. If you believe in a grand vision where a majority of people in the world use cryptocurrency for mundane purchases like clothes, food, and such, that's probably going to require a stablecoin. Hence the keen interest in the space lately among traditional financial institutions like central banks, Wall Street firms, and the International Monetary Fund.
There are bitcoin maximalists who will strenuously object to the latter point, arguing that the grandaddy of cryptocurrencies will do just fine for mass commerce in time.
In the next breath, however, some of these folks will also enthusiastically tell you that bitcoin is due to rally from its current level around $8,000 up to $11,000 in the last few months of this year. They don't realize, such a jump would be exactly counterproductive to their favorite coin becoming a tool for everyday commerce, even if it's good for speculators.
As long as bitcoin or other currencies are subject to big, sudden gains, that effectively creates an incentive for users to hoard the coins, not spend them. To spend some bitcoin today on, say, a salad for lunch might mean missing out on a big gain in thbitcoin next week. So you'd rather exchange something else for the salad that you'll be confident won't go up in value, like the U.S. dollar or a stablecoin.
No one's found exactly the right formula for the latter yet. But the race to get there is getting really interesting.
Header image by Jazmin Quaynor via Unsplash.