A True Stablecoin
A True Stablecoin

By Daniel Goldman | Trading Politics | 13 Aug 2019

USDT and DAI are interesting concepts. They are cryptoassets which are pegged to the USD. There're a number of different cryptoassets that are pegged to different fiat, government issued currencies. They are labeled "stablecoins." But this label is incorrect. As I've mentioned before, the USD is not stable. It is a sh*tcoin that loses its value over time, and whose purchasing power is transferred away from the masses, and to the financial industry, via inflation. 

I honestly don't mind inflationary crypto. Inflation often drives continued usage, while deflation generally leads to hodling and speculating, which is not healthy for any currency. Indeed, I use the term "cryptoasset" specifically because most of the digital tokens that are used in the crypto world, do not fit into the category of money or currency. They are not widely used as an intermediary of exchange, and they are not widely accepted for a wide range of goods and services. 


Purchasing power stability is important for long term decision making, borrowing, using, and so on. If a currency is stable, we'll know that if we spend 100 units now, and get 100 units 10 years from now, we'll still have the same purchasing power returned to us. Uncertainty is always a risk and we don't necessarily want it. Deflationary cryptoassets might seem like a good idea, but they are driven out of circulation by inflationary cryptoassets. Why? Because why would we want to spend 100 units on a pound of wheat now when in a week from now we can buy 110 pounds of wheat? Unless we have no choice but to spend that specific currency, we'll look for others to spend first.

Inflationary currencies aren't necessarily bad. A mildly inflationary cryptocurrency is probably the most healthiest option. High inflation isn't good, because it can lead to wage declines and other problems, as wages will not generally rise to meet the high inflation rates. The real issue that I have with inflationary assets like the USD is that the inflation causes a shift in purchasing power, from the masses, to the financial sector. That's why the USD is a sh*tcoin.

The Stability of Gold

If the goal is to have a truly stablecoin, gold is probably the best peg to use. Gold's purchasing power is not 100% stable, but it is pretty damn close. Silver is also fairly stable, as I mentioned in my article on the USD. But one might wonder why gold is so stable. There's nothing really magical about it. The basic qualities of gold make its demand relatively consistent across all eras. Moreover, because there is more available to be mined, when the value of gold rises because of a supply-demand mismatch, more miners enter the market and more gold is supplied, thus dropping the price back down. Similarly, if price drops too low, miners will leave the market, and supply will decline, again balancing out supply and demand. 

The largest problem with using physical gold as a currency is that it's not all that portable, and it's fairly easy to forge. A person who isn't carefully paying attention could get a fake gold coin. Rome intentionally devalued its currency in order to try to pay for government activities, which of course led to hoarding of better quality money and also in part the collapse of Rome. Buying gold to hold, from a mint, is fine, but conducting transactions in physical gold is simply a problem. There's also not enough of it to go around. Gold's price would have to skyrocket in order for it to be able to cover the monetary base of the USD alone. 

DAI as a Template

There are a number of gold backed cryptoassets, and they're interesting, but I am always concerned with them relying on the good intentions of the institutional holders of the gold. That's why I like DAI. While DAI is pegged to the USD, it is not backed by it. It is instead backed by Ethereum contracts in a way which creates a relatively stable peg to the USD. A similar operation, but which pegs the currency to gold, would be a perfect solution for a true stablecoin. It would have the stability of gold's purchasing power, but with greater divisibility, transferability, and protection against forging, while the supply can be made large enough to cover daily economic transactions.

Selecting a Chain

The one thing I'm not sure about is the underlying blockchain that I want to use. Ethereum is great, and it is a truly decentralized platform. However, it's been suffering from high gas fees, which is why I've largely been working with Tron. Overall, transactions have gone more smoothly on Tron than they have on Ethereum. However, Tron is not quite as decentralized. I have real concerns about the Tron Foundation's ability to manipulate TRX value and the blockchain itself. However, I think that if enough projects are added to Tron, and enough people start using Tron, globally, then those people can pull the power away from the Tron Foundation, which controls the majority of the current super representatives. 

Daniel Goldman
Daniel Goldman

I’m a polymath and a rōnin scholar. That is to say that I enjoy studying many different topics. Find more at http://danielgoldman.us

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