SEC’s chairman Gensler doubts stablecoin, and he believes it acts like casino poker chips. Stablecoin is part of the Decentralized Finance (Defi) invention that pegged fiat currency to stabilize its valuation.
Why the government concerns?
What makes the government powerful is they have monopoly power over the money supply. There hasn’t been any challenge over this money power until the invention of stablecoin.
The way stablecoin to be stable
There are four ways to stabilize the cryptocurrency price: backed financial assets like commodities, fiat currency, cryptocurrencies, or artificial through an algorithm.
Stablecoin got no value
Similar to fiat currency, it got no value but through trust. Stablecoin may get no value but some mix of assets.
Fiat currency has its financial backed assets
Fiat currency is stablecoin like too. However, it got debts backed, which is different than stablecoin with true assets.
Why are true assets worth less than debts?
True assets do not have working capital! If someone owes you something, they have to work on it to pay you off. Therefore, true assets valuation is created out of thin air as appraisal valuation.
Stablecoin companies can become commercial Federal Reserve
Stablecoin can become its own Federal Reserve to supply money to others exactly like the Federal Reverse but more efficient. The government fears that stablecoin to challenge their authority, and they want to regulate them.
Stablecoin is risky due to overleveraging assets backed
The government was nerve-racking because stablecoin did not perform as stable as it claimed to be due to unclear assets quality backing.
Government’s response of stablecoin
One response is CBDC or Central Bank Digitial Currency. The only difference between CBDC and stablecoin is that CBDC is a centralized financial system controlled by the Central Bank.
Two types of stablecoin to counter-argue the government
As much as the flexibility of stablecoin, it can divide into two types, true stablecoin, and deposit stablecoin.
True stablecoin is a non-interest-bearing coin that stabilizes its value against the reference currency through 1:1 liquid assets backing.
Deposit stablecoin is an interest-bearing coin that payout of interest periodically as bond-like security to help fund projects and pay later.
They can resolve issues of possible make prices consistent with over-leveraging assets.
Dangerous of CBDC
CBDC will not resolve the current poker chips economy with an over-supply quantity of money but make the privacy issues even worse. Citizens will have to supply their financial transaction information to the government to exchange power to spend their money.
Stablecoin can prevent privacy issues
Stablecoin is a type of cryptocurrency, and it can protect your privacy to a certain extend. It is quasi-anonymous to shield your privacy to a certain extent without possibly leak too much to another party.
In conclusion
Stablecoin is an answer to the Central bank’s reckless inflated currency. It may not resolve all issues, but it is a step to lead in the right direction.
Photo by Mimi Di Cianni on Unsplash
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Disclosure: The article was written by a delusional author who is possibly a nut job without any questions whatsoever about expertise in the subject matters. You should not believe any words this author wrote or you may experience similar symptoms or even possibly become a nut job.
