It sounds great, but every time I see this argument, I end up going down the rabbit hole of actually studying how stablecoins operate. And every time, I come to the same conclusion: they always rely on trust in an off-chain oracle or custodian. At that point, a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

Bitcoin (and possibly a few others) is one of the few uses of blockchain that actually makes sense. The blockchain serves the currency, and the currency serves the blockchain. The blockchain exists to provide consensus without needing to trust any off-chain entity, but the blockchain relies on computing infrastructure that has real-world costs. The scarcity of Bitcoin (the currency) and arguably-fictitious reward for participation in mining is the incentive for people in the real world to contribute resources required for the blockchain to function.

Any real-world value given to Bitcoin is secondary and only a result of the fact that (1) mining infrastructure has a cost, and (2) people who understand the system have realized that, unlike fiat, stablecoins, or 1000 other crypto products, Bitcoin has no reliance on trusted, off-chain entities who could manipulate it.

You trust your stablecoin's issuer that they hold enough fiat in reserve to match the coin? You might as well trust your bank, but while you're at it, remind them that they don't have to take days to process a transaction - they could process transactions as fast as (actually faster than) a blockchain. But I imagine most banks would point to regulation as a reason for the delays, and they might be right.

So what are stablecoins really trying to do? Circumvent regulation? Implement something the banks just aren't willing to do themselves?

> a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

Stablecoin is not a technology. It's an excuse. An excuse to do what banks do while not being regulated like a bank or using the infrastructure banks use. Similar to how Airbnb is not a technology but an excuse to do what hotels do without hotel's license.

So it makes no sense to compare it to database, a technology.

Will this excuse work? Banking is a heavily regulated field so it's less likely than Airbnb, but it's ultimately up to lawmakers.

> At that point, a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

Except they are frequently _not_. I dislike crypto on principle, but you can't look at the exorbitant transfer fees and latency that a lot of banks charge for common transactions (Visa/MasterCard are especially bad) and say that crypto has no potential.

Yes, it would be easier if we could just trust our banks to offer instant settlement and very low fees, but they don't.

The problem with banks pointing to banking regulation is that they helped shape the regulation - and they did so to protect their business, not to help consumers.

We know that central banks are great at monetary policy. We know that decentralized protocols remove a lot of the more parasitic traits of banks. Why not have a central bank currency that can be traded on the blockchain, especially since converting it to real money will still entail KYC?

> You trust your stablecoin's issuer that they hold enough fiat in reserve to match the coin? You might as well trust your bank

stablecoin issuers are for all intents and purposes banks.

they'll try very hard to stop anyone from calling them that, but in essence, they give you a note (a crypto coin, in this case) in exchange for a promise that they'll give you back the amount of fiat printed on the note. this is the primary purpose of a bank.

I think the most disruptive thing about stablecoins is the ability to opt-into your monetary system of choice.

It's hard for the average non-US person to opt-into the US financial system. Sure, they could hold dollars in banks, but local monetary policy can nix that privilege at anytime by imposing foreign exchange controls. It's happened before, in some of the largest economies in the world: China in 2015, India in 2013, Argentina in 2011.

The current way users solve this problem requires a lot of resources. That's why you usually only see rich people have Cayman accounts, Canadian real estate, and shell companies in Panama. Stablecoins on permissionless blockchains make this process 100x more accessible for the average person.

So yes, stablecoins currently let you circumvent regulation.

But regulation can be a prison where you can pay to be free.

So what happens when it costs nothing to get out of jail? What kind of strains do this place on economies that people escape, as well as the economies that people join?

I guess we'll have to wait and see.

If someone spends significant effort to gather documents proving that their family was forcibly relocated from Poland, they may be able to become a Polish resident and then spend a year or so doing paperwork, bringing all of the documents that are required according to the official web site for some task to the appropriate government office where they are then told that other documents are required, or that nobody in that office even knows what documents are required, and so on, and after that time they may achieve Polish citizenship. You know, in recognition of the fact that their family is in fact Polish. But during that year or so, they may have trouble using the banking system because of sanctions on Russia and because no Polish bank will serve them until they become Polish. So their employer may be on the lookout for alternative payment rails.

> But I imagine most banks would point to regulation as a reason for the delays

There is also good regulation e.g. the EU made it so banks process transactions within "10 seconds", including and especially cross-border transfers for SEPA countries (Single Euro Payments Area). https://www.europarl.europa.eu/news/en/press-room/20240202IP...

So banks willingly being slow with transfers is perhaps a question for your local policymaker to remind them they can do better.

> they always rely on trust in an off-chain oracle or custodian. At that point, a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

International wire money transfer is far too difficult today. And after you've sent it, you still need to wait minutes (hours?) for the receiving end's bank to actually process the wire and move it into the recipient's account (correctly).

Then you need to nag the receiving party to check their account every few minutes so that they can inform you that they actually did receive it successfully. What if they're in a different timezone? 12 hours off?

Moving money on a blockchain is far simpler.

100% why am I going to use a permissionless blockchain….

To get coins fully controlled by circle.

On a chain with low fees controlled by Coinbase (base) for example.

In this case this new L1 won’t even be distributed by anyone initially too.

It all seems like a Ponzi scheme or small utility for international users. Otherwise I don’t know why you’d trust these centralized authorities.

What stops someone at circle deciding to issue more usdc without real dollar backing

My current best guess is that people are finding stablecoins valuable because they are effectively barer assets issued by an entity in another jurisdiction that has no requirement to surveil or control how those tokens are moved around between parties, and hence it allows you to skip a lot of the regulatory overhead you would normally have in dealing with a local bank. Of course this can be stopped by states eventually, but it helps when the jurisdiction of the issuing entity is allowing it.

Stablecoins are generally used:

- by USA government (indirectly) to re-dollarize the world without generating too much USA inflation, another IMF SDR mimicking China usage of foreign currencies to avoid hyperinflation;

- by many migrants in the I world to send money home, something in the III world could be converted to USD at a much cheaper rates and with much simplicity than classic banking/money transfer solutions;

- as a hedge against local currencies, considering dollar or some other currencies much more stable (see for instance the Argentina forcibly conversion overnight of USD accounts to ARS with enormous loss in 2002;

- as a decorrelated asset for DeFi trading on non-stablecoin cryptos (meaning market timing, buying BTC, ETH, SOL, ... when they dip, swapping then to some stablecoins when they top, waiting with the stablecoin for the next dip to buy).

In that regard the (unlikely) real existence of the collateral they claim is not much relevant: as long as most trade on stablecoins come from DeFi the Venezuelans, Bolivians, ... who choose them to bring USD home, the few company using them to pay B2B stakeholders in various countries are still happy anyway, as long as the stablecoin remain de-correlated to other crypto traders are happy anyway.

Tokenised stocks are more likely used to circumvent regulations since you can buy them swapping non-KYC coins against them avoiding capital gains taxes, at least partially.

The irony is that valid international transactions must be enforced with centralized rules, and thus a decentralized ledger like BitCoin can never operate in this space.

Contradictory requirements.

Stripe's a $90bn+ company because it builds & sells tools that make it easy for software engineers to programmatically move and manipulate money. This is a no brainer for them (regardless of how mainstream stablecoins/cryptocurrencies/blockchain eventually become)

Lots of things have a cost, and lots of things are difficult to manipulate. Bitcoin has value only because of speculation and the Greater Fool Theory. There's nothing fundamentally distinguishing BTC from any random shitcoin. Why is Bitcoin Cash worth so much less than vanilla Bitcoin?

It's very difficult for many folks to accept this, but the difficulty of producing something (mining) does not determine its economic value: https://en.wikipedia.org/wiki/Labor_theory_of_value

Yes but bitcoin is essentially useless as an unit of exchange because it’s extremely unstable and deflationary nature. The only “logical” thing to do with it is to HODL.

This is not really correct.

When a stablecoin is issued on a public chain then the issuer cannot secretly censor transactions and the activity of the issuer in general is auditable.

You also get access to all the magical DeFi stuff.

Other than this you, as a person, don't need to be aligned with the current political regime you live in to open a stablecoin "bank account". This on its own is a huge breakthrough.

The value of Bitcoin also depends on your ability to convert it to real world money, since contracts are denoted in real world money.

I'd argue the real value of money lies in contract enforcement. And I am talking about real world physical enforcement like police throwing you in jail. In financial engineering literature we don't really care about the real value of money, the only assumption needed is that contracts are enforced. If that is the case then you can hedge.

For example: You sign an employment contract where you get paid in USD. You also sign a rental and utility contracts in USD. If salary > housing cost, then you essentially have your housing needs hedged. You don't really care that USD has "real value". The value of USD lies in the fact that these contracts are enforced by the government.

The rarity of a currency is important in the sense that contracts don't make sense for all parties if the currency is too abundant. For example, if you can find USD laying on the street, then you would not work for USD. The rarity mechanism itself is not important.

"they don't have to take days to process a transaction" Unlike blockchains, banks are required to check the tx validity against fraud, money laundering, sanction lists, terrorist financing etc, must ensure funds could be returned if a mistake was made. They could not be processed on weekend or at night, because some transactions require manual review by human workers.

Have you looked into Ethena USDe?

It is completely decentralized and doesn't use a flawed algorithmic stablecoin mechanism like Terra-Luna but rather creates synthetic cash exposure by shorting perpetuals against collateral the same way a TradFi investment manager would manage their asset allocation exposure. The perps are traded on DEXs and I believe the BTC and ETH is held in on-chain vaults.

This is a solid model and I believe the leading decentralized stablecoin.

Things like USDT and USDC are essentially tokenized real-world dollars. Nothing inherently wrong with that, for example the Eurodollar market has existed for decades, but it does require oversight that collateral reserves are what they are and also means they are not truly decentralized as you point out.

At first stable coins were to avoid taxes when selling and buying again by skipping the round trip to fiat.

But now, the use case Stripe is talking about is basically the equivalent of creating WoW Gold for companies, and bypassing state money entirely, but IRL.

This is a dangerous idea.

Big corps have become immensly powerful, but they are still kept in check by the state for 3 reasons: the monopoly on law, violence, and minting money.

Lobbying is taking care of the law.

And now they are coming for the money.

Crypto currencies were supposed to taken the power of currency from big actors and back to the people. It's going to take it from the state to companies.

Soon, they will effectively have more power than the state, and citizens will be screwed.

The only convincing explanation of the benefits of stablecoins I have seen is that it is a backdoor for implementing narrow banking, which libertarians love and economists and central bankers hate (as it would cut off credit to the economy).

A narrow bank is a bank that takes deposits but doesn't make loans, basically parks the cash at the central bank or into risk free instruments. So it provides you with payment facilities, very low interest rates, without the credit risk that comes with a large bank that has exposures to all sorts of risky businesses.

Everything else is either temporary benefits of arbitraging slow moving regulations (but KYC, consumer rights, money laundring regulations, etc are quickly catching up), or as you suggest, some non sense about a zero trust system (crypto / public ledger) that fundamentally relies on trusting a custodian (so you might as well use an oracle database and spend in licensing what you save in energy cost!).

Bravo! I don't think it can be put more plainly than that.

> So what are stablecoins really trying to do? Circumvent regulation? Implement something the banks just aren't willing to do themselves?

They allow businesses to act like banks without obtaining a commercial banking license. Initially this circumvents regulation, but over time, it allows entities to outsource solutions for those pesky regulations (compliance, audit, etc.) to third parties.

> Implement something the banks just aren't willing to do themselves?

I think that's it. We're very unlikely to see international transactions between banks happen as easily and as quickly as they can with a stablecoin, even though it's technically possible.

I think part of what makes it easier is that with crypto there's "no take backs" since it's largely impossible. Banks have to worry about fraud constantly because they're somewhat liable.

> So what are stablecoins really trying to do? Circumvent regulation? Implement something the banks just aren't willing to do themselves?

Circumventing sanctions.

European Union forced all banks that offer instant-transfers to make them for free starting 26‘ if I remember correctly. That works rather well!

Bitcoin makes the least sense of any of these schemes. Proof of work is just proof of sota ASIC ownership, which is just proof of stake by another name. Why not just use POS like everyone else and avoid dumping the carbon? Bitcoin is going to be one of those things in the history books that will seem utterly incomprehensibly irresponsible to future generations.

Banks could offer instant settlement, in theory. But they don’t. Blockchains plus stablecoins do.

> remind them that they don't have to take days to process a transaction

And in a lot of places, they don’t. I haven’t had to wait days for a transaction for… more years than I can remember, in the UK or Australia.

> At that point, a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

What open-source shared ledger would you suggest is a better fit?

>At that point, a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

This is missing the fundamental idea behind blockchain. You need a consensus mechanism and immutable ledger in order for it to be secure and truly transparent. Once you add those boom you have yourself another blockchain :-)

>So what are stablecoins really trying to do? Circumvent regulation?

No, stablecoins have less regulatory burden because of the public ledger removing the need for manual review and verification by various intermediaries. They are still compliant with regulation.

> It sounds great, but every time I see this argument, I end up going down the rabbit hole of actually studying how stablecoins operate. And every time, I come to the same conclusion: they always rely on trust in an off-chain oracle or custodian. At that point, a shared ledger implemented with traditional databases / protocols would be faster, easier, and more transparent.

I think the unspoken part here here is that the lack of transparency is a feature for some users.

I'm generally a cynic on cryptocurrencies and I think they're kind of terrible for society in a lot of ways, so none of what follows should be taken as a positive opinion on cryptos. I'm just explaining how they work.

There will always be two competing interests with regards to currencies:

1. On the one hand, consumers make mistakes and get scammed, and want reversible transactions.

2. On the other hand, sellers don't want reversible transactions: if you sell a bike for currency and the transaction gets reversed, you don't get your time back even if you get the bike back in mint condition--and getting the product back at all isn't always possible, if the product was a tattoo, a class taught, or some intellectual property.

In traditional financial systems, anyone operating a financial system in a centralized way always gets bullied into reversing transactions. If you're the bank running it, you just screw over the seller most of the time because they are too small not to work with you and the customers you bring, and buy insurance for the rest of the time.

With stablecoins, so far, this hasn't happened. Sure, if you complained to Circle about getting scammed in USDC, in theory they could just un-issue your spent coins and issue you some new coins, but that would be in violation of their entire crypto ethos. Like fiat, the value of the currency is only based in belief in the issuing central entity, but unlike fiat, part of that belief in the issuing entity is built around them not reversing transactions.

Will that belief be enough to hold it, forever? I don't know, but I think it's definitely a stronger power than people believe it is, even if it's not literally the power of electricity being poured into hashing.

As a side note: not all stable coins are issued by a central entity. There are two other types of stable coins I'm aware of:

1. Collateralized: Examples: DAI, VAI, and I think MAO. Basically, anyone can borrow (mint) these currencies by storing other assets in the protocol. So for example you can deposit $1000 worth of Ethereum into the DAI protocol and that allows you to borrow some safe amount of DAI which is minted on demand, say 400DAI. If the value of your deposited Ethereum falls too close to $400, the protocol automatically sells the Ethereum to reclaim DAI which is then burned to keep the price of DAI from falling. But assuming your margins stay safe, you're able to repay your DAI at your leisure.

2. Algorithmic: Examples: TERRAUSD, IRON. These are paired with a second, unstable cryptocurrency (TERRA/LUNA, IRON/TITAN) which is used to stabilize the coin. If the price of the stablecoin rises above $1, you mint more and distribute it in some way, diluting the coin to bring its value back to $1. If the price of the stablecoin falls below $1, you mint more of the unstable coin and use it to buy back and burn the stable coin. In case it isn't obvious: this only works if the unstable coin has value for some other reason, and in both the example cases--it ultimately didn't and both coins came unpegged when the unstable coin crashed to 0. FRAX/FXS worked this way originally I think, but ultimately they've moved to a more collateralized model.

They are all mostly using crypto as a replacement/alternative to centuries old hawala/hundi system.

People are rushing to do CDO-squared (collateralized debt obligation from 2006) type financial products using stable coins. And one company has already created an ETF product linked to an on-chain CDO-style debt product.

I think the financial industry has figured out a way to do an end run around all financial regulations written since the 1930s.

I think like vaccine mandates, we will all have to "relearn" why we wrote this regulations in the first place the hard way.

They are trying to give credibility to as value-less asset that’s historically been used for illegal activity, gambling, and predatory selling of said assets to people who don’t understand them.

Tether claiming they have the ability to back up their coins with USD lets crypto people claim their nonsense actually has value.

Of course the entire thing rides on the “trust me bro” guarantees offered by tether. They could erase a lot of the stink by going through an audit but for some reason they won’t.

slower transaction processing is more profitable, because banks can profit from interest in the interim. It's not some law of nature that it can't be done faster.

Do bank transfers really still take days in the US?

>> So what are stablecoins really trying to do? Circumvent regulation? Implement something the banks just aren't willing to do themselves?

yeah and this is great. I couldn't care less for banks protection.

Revolut blocked my account with 8k on it for 8 months, though their app said it will be max 2 weeks.

Customer support ignored me for 6 months until I said I am going to court.

So yeah fuck them. The is a case for banks but there is also a case for me keeping a chunk of my money in stable coins so its actually mine.

Edit: and to clarify I didn't do anything illegal, after I threatened them they completed their whatever they did and unlocked my funds that have been locked for 8 month.

And guess what - no consequences for them leaving me at that time without my safety net.

[flagged]

You are missing what many are missing, which is that a centralized stablecoin like USDC on a public blockchain is already much more useful and powerful than a dollar in a bank account, and that will only 100x from here.

The reasons why are left as an exercise to the reader :)

Stablecoins are a necessary legal hack.

The US has regulated itself into a corner when it comes to AML/KYC. Those regulations ended up causing more problems than they solve, but they can't ever be undone. If something ever happens, like a terrorist attack funded by money laundering activity that the existing regulations could possibly have prevented, the blame will fall squarely on the shoulders of the politicians who decided to undo them.

It's much easier (and politically safer) to say that stablecoins are just a different asset class, and hence very different regulations should apply to them. This essentially lets politicians design a parallel, much more permissive financial regulatory system from scratch, with many lessons learned from the existing one. If something ever happens, it can always be blamed on "those pesky stablecoin issuers who keep prioritizing profits over the security of our nation."

From a purely technical perspective, any stablecoin could be replaced by a centralized database mapping public keys to balances, at much lower cost and with very little loss in functionality. That, however, would look too much like a bank from the regulatory side.