This is a really fun well-written and on point set of articles. Thank you for sharing.
I feel like at this point there isn't anybody defending stablecoins who isn't using them primarily speculative investment/trading. There has yet to be a usecase for distributed ledger that isn't solved better by a centralised ledger other than niche counter-culture solutions whose users are typically blinkered to the fact that they are already a self-selected techno-elite who can't bring their utopia to the commons. That ended a bit more nasty sounding that I intended, apologies.
The other legit use for stablecoins is allowing people in Venezuela, Argentina, etc. to hold US dollars while the US government pretends they don't know this is happening. (Officially the US does not encourage dollarization of other economies against their will.) I agree that a centralized US dollar CBDC that isn't run by scammers would be a simpler way to do this.
This is basically the valid use case, yes. It turns the bitcoin goldbug inflation paranoia on its head: the stable currency is defined to be the US dollar, and an elaborate proxy system allows people to access that stability when their local government doesn't want them to. Circumventing exchange controls and so on.
Although the current government is having a good go at reducing the value of the currency, it's barely budged on the chart.
You think the same system that chose to bail out the banks in 08 should be fully responsible for our financial future? I believe a more distributed financial system would provide more stability for all of us. The GENIUS Act establishes some very strong standards that I believe will strengthen the economy, the dollar, and enable more people to enter the financial services industry in a competitively healthy way. A scammer would have a hard time 1:1 backing their stablecoins with bonds and equivalently stable assets.
The reason they don’t want a CBDC is to be able to collect interest on behalf of the people holding the currency. If the state launches a blockchain CBDC, the state will profit. It’s too much money not to corrupt the most powerful people on the planet.
It's not just places with hyperinflation. It's any country. Why should anyone be restricted from holding USD or have to pay crazy fees to buy dollars?
> I agree that a centralized US dollar CBDC that isn't run by scammers would be a simpler way to do this.
I don't think it's a stretch to imagine that the government would ban all other stable coins and strictly control what "valid commerce" is allowed to be done with the centralized coin (see Operation Choke Point)
If a country does not allow their citizens to exchange currency, then this is as good as a black market and comes with the same risks as obtaining currency through any other black market means.
> There has yet to be a usecase for distributed ledger that isn't solved better by a centralised ledger
what about situations where centralized ledgers won't serve you? e.g. someone who wants to buy drugs, or sex workers want to get paid. And you mention "niche counter-culture solutions" but I don't think it's so niche - in 2002, the government of Argentina stole 2/3rds of everyone's savings by forcibly converting their dollar-denominated bank accounts into pesos at a terrible exchange rate. Not having to worry about this because you have a trustworthy government is nice, but it puts you into an elite class of your own.
What you're talking about, resistance to government meddling, is more of a function of the currency than the ledger. Cryptocurrencies only work because of people silly enough to buy them in exchange for actual "valuable" or official currencies (which can be imposed on some people in the world at gunpoint). If a cryptocurrency was forced on you at gunpoint, it most certainly would not be one that provided any anonymity.
Do cryptocurrencies provide value to people living in third-rate hellhole countries? Perhaps, because they are connected to the outside world. Ideally you could just have a foreign bank account that your country cannot touch. If the big governments gang up on crypto exchanges, then crypto will be worthless. The only reason they don't gang up on the exchanges seems to be that they (the people in government) use crypto for nefarious activities and money laundering.
The technological innovations of cryptocurrencies make for good thought experiments or puzzles, but serve as a distraction from their inevitable uselessness.
You're right that they aren't speculative in the financial sense of "hopefully gaining value over time", but you do speculate (in the more general sense) on the fiat-pegging mechanism(s) to work to preserve the value you are storing in them...
> There has yet to be a usecase for distributed ledger that isn't solved better by a centralised ledger
As I understand it, many countries in the European Union use distributed ledgers for elections. Essentially it lets you cross reference votes and store that database across servers in multiple countries. It also prevents post-election data tampering by the state holding the election.
My understanding is this this system is not an open to every random Joe who wants to have a server (like bitcoin is). I think you still need to be a state actor to be part of the distributed database (so it's not a zero trust environment).
(Unfortunately, I don't have any good links to back this claim up)
Would you consider Stripe and PayPal also interested in speculative investment/trading? They seem responsible to me. Also, stablecoins aren’t speculative. Cryptocurrencies absolutely are. But stablecoins are pegged to USD, hence “stable.”
I think you’re right to criticize crypto as a techno-elite project. However I think stablecoins have a legitimate use case for billions of people who don’t have access to good banks, or a stable currency, and can’t afford traditional fees. IMO it’s one of the best things to come out of crypto.
I agree with the premise that on a tech basis, a centralized ledger is just as good, if not better, than a decentralized one.
The problem stablecoins are solving are self-inflicted: KYC to open a bank account, restricted nationalities, account freezes, capital controls, taxation over-reach, etc.
At some point someone figured out that if they start over, there is a lot of “value” to be unlocked out there; and paid/lobbied/sponsored the right person to execute on that.
E.g."Stablecoins won’t bank the unbanked, because people get stablecoins by purchasing them on a crypto exchange, and no crypto exchange will open an account for a customer unless they have a bank account."
Well, I understand that US has dystopia level of financial surveillance, but in many places in the world you can change cash in person to crypto without many issues. And you don't need to use any major exchange for that, that defeats the whole point.
And yes, Russians, Iranians, Palestinians are known to use crypto, for example. And the majority of them don't have US bank accounts.
One of the core features of crypto that it's not an American (or anyone else) thing, like paypal, stripe, or any other system and American laws can be easily ignored if both parties are outside of the US. That's already a very liberating feature for at least a billion of people of nations hostile to the US and potentially to 8+ billions of people more.
I don't think any first world country makes it possible to do banking, if you decide to simply not comply with AML/KYC regulations. You very much become unbanked, if you simply don't want to or can't comply with those things. (European here)
First of all, who says that it has to be a global standard?
It's not an 'all-or-nothing' thing.
Those are instruments which already help many people (those you define as questionable for some reason). I'm actually pretty happy to see that the world has a tool to help millions of people with "questionable" religious, cultural, political, ideological views or sexual orientations. That reduces the pressure and advantage of people who want to make their lives harder.
If you don't need it, don't use it. That's totally cool. It doesn't have to be global. To be honest, I don't think anything needs to be global. That gives too much leverage to a single group at the expense of everyone else. The world is better off having many options for everyone.
Questionable individual here. My bank accounts are all blocked now just for the reason of my nationality, nothing else. Crypto is currently my lifeline.
In any world where the standard is convergent, not explicitly agreed upon, and there's no natural boundary between shady users and non-shady users. An x% shadiness user joining the network grants justification to the next x-0.001% shadiness user.
In the world where the non-questionable financial organizations decide who can access them or not, based on the place they were born at. I.e., the current world.
> And yes, Russians, Iranians, Palestinians are known to use crypto, for example
Yes and mostly (as in 99% by amount of crypto moved) it's their governments
For example Russia it is not legal to pay with crypto, and to cash it out allowed crypto exchanges must submit your transactions to the government etc otherwise they get blocked.
But the bandit state is free of course to use it to trade with its friends like NK (which basically runs its nuclear program on ransomwared crypto) or Hamas;)
> For example Russia it is not legal to pay with crypto, and to cash it out allowed crypto exchanges must submit your transactions to the government etc otherwise they get blocked.
Sorry, but it's very naive to think that Russian people use only "allowed" crypto exchanges and comply with the laws. That would be an impossible country to live in.
Direct connections with people and being street-smart are important kinds of skills in such societies. And even without connections, you can easily go to some popular Russian exchange aggregators and find no-KYC options with cash delivery, as far as I know.
EDIT: I've actually just checked for you: starting from 10,000 USDT, you can cash out anonymously with cash delivery for 1% in Moscow right at this moment from a publicly accessible resource with reviews.
recently i made a cash withdrawal from my personal account ahead of a trip abroad (they asked me why) and within days received a FinCEN notice in the mail warning me about “ structured transactions”… having made no other cash transactions days or even check cashing or writing days before or days after.
At the end of the day, most crypto has a built in way to turn fossil fuels into significantly less money than you paid for them, so it doesn't even apply to the US unless they've started requiring KYC for ASICs and GPUs.
I am not convinced this carbon-intensive form of money laundering is a good thing, but it certainly exists.
EDIT: went looking for data and it's estimated that ~63% [1] of power used in bitcoin proof-of-work operations. I honestly thought this figure would be higher, but with the insane campaign the American government is doing to invest and expand on drill operations this could go up in the short term. Long term though it's unlikely that this will keep up and we should see renewable sources gaining space more and more, just because it's the smart thing to do.
Outdated view since 99.9% of transactions happen on proof of stake systems which have a very low carbon footprint - not much more than Visa or Mastercard.
As someone working with African companies (legitimate businesses, mid-sized transactions), the key use case is payments in stablecoins—their banking infrastructure doesn’t allow for reliable and consistent foreign remittances.
These deals would be practically impossible without stablecoins.
(And to be clear, I’m someone who has never been particularly enthusiastic about crypto or blockchain.)
Do you know why people would choose to use stablecoins, rather than trade shares in an ETF that held government bonds, or something like that? That's what stablecoins are, effectively just a share in the holding company's bank account.
I think for the same reason that most people hold cash in a bank account rather than putting all of their money in ETFs/bonds. Convenience, stability, and security.
Consider living in a country with an unstable and fiscally irresponsible government. And having a net worth <$10k. Suddenly being able to hold your money in USD, on an account that cannot be seized, and can be used globally, becomes incredibly attractive.
You don’t need financial literacy, there is no min-buy in like ETFs/bonds, and there is minimal KYC or other identity restrictions. I think this is an incredible boon for the billions of people living in such conditions.
Or a CD, or maybe just a bank account. I think of stablecoin issuers as banks because why not: they keep your cash, pay you some yield and promise to give it back to you when you ask them. Walks like a bank, quacks like a bank…
Can you give more details on this? Why is it that the existing banking system cannot do this kind of foreign remittance? E.g. correspondent banking via Swift?
Is it high fees, is it overly burdensome sanctions/AML checks, something else?
Not OP, but we have contractors in Nigeria, and paying them via regular bank transfer is nearly impossible. For example many banks will outright refuse to make SWIFT transactions to Nigerian accounts.
This is just one example of a few factors that lead to a sort of isolation from international banking.
It's high fees, burdensome sanctions/AML checks (especially if the said country has been recently or is still on a GAFI list), plus the suboptimization of the core banking systems regarding international transfers, that make the whole things happen in weeks (or sometimes never happen if the end beneficiary doesn't start pinging, emailing or phoning its bank every now and then). The whole unreliability/unpredictability of the thing makes it undesirable for regular operations.
Why can they not just use America's banking infrastructure directly instead of using America's banking infrastructure indirectly through meaningless overengineered abstractions like stablecoins?
I am not an expert but I don’t believe most countries would allow their citizens to use American banking infrastructure, nor would most American banks accept a foreign account. Stablecoins get around these limitations, while also providing lower fees and higher availability.
How do they open the bank account? Looks like a foreigner opening a bank account in the US would need proof that they have a US address. (Or at least, the major banks I checked did.)
> They aren’t as stable as they claim to be, and the stability they do have arises from free-riding on the US banking system and monetary policy – and as we’ll come back to, if stablecoins are able to keep gaining market share, these parasites might eventually endanger their hosts.
Strong statement, where is the evidence? The GENIUS Act is quite brilliant in my opinion. It strengthens the dollar by simultaneously creating demand for USD and US Treasuries.
I looked at crypto a little for a startup - the thing that isn't usually mentioned is the huge downside of custody. Not your keys, not your coin - and holding those keys securely, think fire, theft, hacks, backdoored hardware wallets, etc - is really really hard to get correct. And if you mess up once anywhere - poof - all your money is gone and there's nothing you can do to get it back.
Exactly. Crypto is like having all of your money as cash that thieves can teleport out of your safe. It must be incredibly stressful to have most of your wealth in crypto knowing this.
Yeah who in this world has never had to reset a password? That’s what this means. That laser inscribed metal fob with you keys on it may as well be made of platinum.
And I’ve never felt clear on how people trust wallet, hot or cold — at some point they connect to the internet for transactions, and all the vendors seem suspect. I really doubt most users are building their wallet from code reviewed cryptographically signed source… but maybe I’m wrong?
I think most users have no clue how any of it works - there are so many footguns doing it yourself that probably an exchange like Coinbase is the best bet, but again, not your keys, not your coin...
Best you can do is to split your crypto among many different hardware wallets and some metal cold storage wallets. Maybe even try to memorize at least one wallet password. It just seems so stressful.
> That laser inscribed metal fob with you keys on it
Unless you manually inscribe it with a laser (good luck), that wouldn't really be a great idea unless the computer assisting you in the inscriptions is completely air-gapped.
Stamping/manually engraving your seed on fire resistant stainless steel (308 is my preference) is still one of the most "air-gapped" way to do this.
> at some point they connect to the internet for transactions,
Some don't, for example ColdCard. It is possible to use it without ever connecting it to a computer. Using a power source and a USB cable, they even offer a way to avoid using power adapters (using common batteries) as these tend to become "smarter" these days and could one day be the source of an exploit.
I think the biggest problem with fintech is that the financial system is already decentralized, and full of tech. It really just seems like it involves using unregulated technology, which allows the skipping of restrictive regulations. This might actually be a good thing, but once a path has been proven to be non destructive the banks can just take over the market by begging the government for deregulation.
> It really just seems like it involves using unregulated technology, which allows the skipping of restrictive regulations. This might actually be a good thing
Yeah, it's basically Uber for finance/banking/etc. Reap the free real estate created by rules and regulation by..skirting the rules and regulations.
It also adds indirection, which in turn allows all the parties involved to point fingers at each other Spiderman-style. "Oh I thought $X was responsible for $COMPLIANCE." Eventually, y'all get audited and shape up but that's a years-long process. And in that time you've grown and grown and finance/banking/etc is pretty sticky. Kaching :)
Except that stablecoins are strictly regulated thanks to the GENIUS Act and hopefully the CLARITY Act will provide the same guidelines for crypto as a whole. Gary Gensler did nothing to create regulation. David Sacks is out there doing God’s work.
One problem with this is crypto AMM (automated market making) works best with stability and low volatility. For example, it's terrible in the context of prediction markets. Market makers get hosed due to real life, and traders (me) can profit at their expense. It's a big part of why prediction market traders encouraged Polymarket to develop orderbooks. And if crypto is viewed as disruptive, then it's likely inducing greater volatility.
A lot of these things are lucrative until they're not. If they are inherently lucrative then that profit will diminish as people catch on.
Every market has a use case, and AMMs are not solving event markets, event markets tried to use AMMs and successfully pivoted to order books. I think Polymarket's implementation still has liquidity challenges, as they still have to centrally bribe people to participate. Honestly I don't like Polymarket's contract at all, but it is fast and low cost. Bribes in the solidly AMM model I think were more efficient at attracting liquidity. Slight tangent, the oracle in Polymarket is a bigger issue, people need to convince them to lower the weight of UMA.
back to what I'm a fan of: CLMMs (Concentrated Liquidity Market Maker) is a very competitive field. The level of profits depends solely on volume and amount of capital participating. You are counting on other capital getting bored and moving away, as well as volume rising. Thats the game, it will always be the game. Its already "lucrative until its not" so its not really a gotcha or that insightful for those passing by. I'm glad you have some experience with it.
Readit News
I feel like at this point there isn't anybody defending stablecoins who isn't using them primarily speculative investment/trading. There has yet to be a usecase for distributed ledger that isn't solved better by a centralised ledger other than niche counter-culture solutions whose users are typically blinkered to the fact that they are already a self-selected techno-elite who can't bring their utopia to the commons. That ended a bit more nasty sounding that I intended, apologies.
Although the current government is having a good go at reducing the value of the currency, it's barely budged on the chart.
> I agree that a centralized US dollar CBDC that isn't run by scammers would be a simpler way to do this.
I don't think it's a stretch to imagine that the government would ban all other stable coins and strictly control what "valid commerce" is allowed to be done with the centralized coin (see Operation Choke Point)
https://en.wikipedia.org/wiki/Operation_Choke_Point
what about situations where centralized ledgers won't serve you? e.g. someone who wants to buy drugs, or sex workers want to get paid. And you mention "niche counter-culture solutions" but I don't think it's so niche - in 2002, the government of Argentina stole 2/3rds of everyone's savings by forcibly converting their dollar-denominated bank accounts into pesos at a terrible exchange rate. Not having to worry about this because you have a trustworthy government is nice, but it puts you into an elite class of your own.
Do cryptocurrencies provide value to people living in third-rate hellhole countries? Perhaps, because they are connected to the outside world. Ideally you could just have a foreign bank account that your country cannot touch. If the big governments gang up on crypto exchanges, then crypto will be worthless. The only reason they don't gang up on the exchanges seems to be that they (the people in government) use crypto for nefarious activities and money laundering.
The technological innovations of cryptocurrencies make for good thought experiments or puzzles, but serve as a distraction from their inevitable uselessness.
Stablecoins are not speculative or investments at all - their price stays the same. That's where stable in stablecoin comes from.
You see crypto and think day trading
TerraUSD enters the chat
You're right that they aren't speculative in the financial sense of "hopefully gaining value over time", but you do speculate (in the more general sense) on the fiat-pegging mechanism(s) to work to preserve the value you are storing in them...
As I understand it, many countries in the European Union use distributed ledgers for elections. Essentially it lets you cross reference votes and store that database across servers in multiple countries. It also prevents post-election data tampering by the state holding the election.
My understanding is this this system is not an open to every random Joe who wants to have a server (like bitcoin is). I think you still need to be a state actor to be part of the distributed database (so it's not a zero trust environment).
(Unfortunately, I don't have any good links to back this claim up)
I think you’re right to criticize crypto as a techno-elite project. However I think stablecoins have a legitimate use case for billions of people who don’t have access to good banks, or a stable currency, and can’t afford traditional fees. IMO it’s one of the best things to come out of crypto.
The problem stablecoins are solving are self-inflicted: KYC to open a bank account, restricted nationalities, account freezes, capital controls, taxation over-reach, etc.
At some point someone figured out that if they start over, there is a lot of “value” to be unlocked out there; and paid/lobbied/sponsored the right person to execute on that.
E.g."Stablecoins won’t bank the unbanked, because people get stablecoins by purchasing them on a crypto exchange, and no crypto exchange will open an account for a customer unless they have a bank account."
Well, I understand that US has dystopia level of financial surveillance, but in many places in the world you can change cash in person to crypto without many issues. And you don't need to use any major exchange for that, that defeats the whole point.
And yes, Russians, Iranians, Palestinians are known to use crypto, for example. And the majority of them don't have US bank accounts.
One of the core features of crypto that it's not an American (or anyone else) thing, like paypal, stripe, or any other system and American laws can be easily ignored if both parties are outside of the US. That's already a very liberating feature for at least a billion of people of nations hostile to the US and potentially to 8+ billions of people more.
It's not an 'all-or-nothing' thing.
Those are instruments which already help many people (those you define as questionable for some reason). I'm actually pretty happy to see that the world has a tool to help millions of people with "questionable" religious, cultural, political, ideological views or sexual orientations. That reduces the pressure and advantage of people who want to make their lives harder.
If you don't need it, don't use it. That's totally cool. It doesn't have to be global. To be honest, I don't think anything needs to be global. That gives too much leverage to a single group at the expense of everyone else. The world is better off having many options for everyone.
Yes and mostly (as in 99% by amount of crypto moved) it's their governments
For example Russia it is not legal to pay with crypto, and to cash it out allowed crypto exchanges must submit your transactions to the government etc otherwise they get blocked.
But the bandit state is free of course to use it to trade with its friends like NK (which basically runs its nuclear program on ransomwared crypto) or Hamas;)
Sorry, but it's very naive to think that Russian people use only "allowed" crypto exchanges and comply with the laws. That would be an impossible country to live in.
Direct connections with people and being street-smart are important kinds of skills in such societies. And even without connections, you can easily go to some popular Russian exchange aggregators and find no-KYC options with cash delivery, as far as I know.
EDIT: I've actually just checked for you: starting from 10,000 USDT, you can cash out anonymously with cash delivery for 1% in Moscow right at this moment from a publicly accessible resource with reviews.
“dystopia level of financial surveillance,”
these days…
recently i made a cash withdrawal from my personal account ahead of a trip abroad (they asked me why) and within days received a FinCEN notice in the mail warning me about “ structured transactions”… having made no other cash transactions days or even check cashing or writing days before or days after.
I am not convinced this carbon-intensive form of money laundering is a good thing, but it certainly exists.
EDIT: went looking for data and it's estimated that ~63% [1] of power used in bitcoin proof-of-work operations. I honestly thought this figure would be higher, but with the insane campaign the American government is doing to invest and expand on drill operations this could go up in the short term. Long term though it's unlikely that this will keep up and we should see renewable sources gaining space more and more, just because it's the smart thing to do.
[1] https://batcoinz.com/bitcoin-by-energy-source/
(And to be clear, I’m someone who has never been particularly enthusiastic about crypto or blockchain.)
Consider living in a country with an unstable and fiscally irresponsible government. And having a net worth <$10k. Suddenly being able to hold your money in USD, on an account that cannot be seized, and can be used globally, becomes incredibly attractive.
You don’t need financial literacy, there is no min-buy in like ETFs/bonds, and there is minimal KYC or other identity restrictions. I think this is an incredible boon for the billions of people living in such conditions.
Is it high fees, is it overly burdensome sanctions/AML checks, something else?
This is just one example of a few factors that lead to a sort of isolation from international banking.
https://fintechdystopia.com/chapters/chapter3.html
And I’ve never felt clear on how people trust wallet, hot or cold — at some point they connect to the internet for transactions, and all the vendors seem suspect. I really doubt most users are building their wallet from code reviewed cryptographically signed source… but maybe I’m wrong?
Unless you manually inscribe it with a laser (good luck), that wouldn't really be a great idea unless the computer assisting you in the inscriptions is completely air-gapped.
Stamping/manually engraving your seed on fire resistant stainless steel (308 is my preference) is still one of the most "air-gapped" way to do this.
> at some point they connect to the internet for transactions,
Some don't, for example ColdCard. It is possible to use it without ever connecting it to a computer. Using a power source and a USB cable, they even offer a way to avoid using power adapters (using common batteries) as these tend to become "smarter" these days and could one day be the source of an exploit.
Dead Comment
Yeah, it's basically Uber for finance/banking/etc. Reap the free real estate created by rules and regulation by..skirting the rules and regulations.
It also adds indirection, which in turn allows all the parties involved to point fingers at each other Spiderman-style. "Oh I thought $X was responsible for $COMPLIANCE." Eventually, y'all get audited and shape up but that's a years-long process. And in that time you've grown and grown and finance/banking/etc is pretty sticky. Kaching :)
That worked in the U.S.
European banking regulators saw through this ploy and forced them to seek a banking license.
I think this is successful in its goals
Liquidity providing on concentrated liquidity pools is something I would like to see in the high volume US equities market
But will realistically only exist on tokenized platforms that trade their surrogates
It’s extremely lucrative and was only in the domain of market making firms before this technology
A lot of these things are lucrative until they're not. If they are inherently lucrative then that profit will diminish as people catch on.
back to what I'm a fan of: CLMMs (Concentrated Liquidity Market Maker) is a very competitive field. The level of profits depends solely on volume and amount of capital participating. You are counting on other capital getting bored and moving away, as well as volume rising. Thats the game, it will always be the game. Its already "lucrative until its not" so its not really a gotcha or that insightful for those passing by. I'm glad you have some experience with it.