Stable coins are critical to the adoption of bitcoin or cryptocurrencies, but there has been so little effort gone into this problem to date. One of the major reasons enabling technology is that each person comes to crypto with domain expertise and when they apply this to crypto we get new use cases. We have witnessed numerous utility tokens emerge over the last few years across so many use cases. But still, very less focus has been put into rightful usable crypto applications. That may be because to date a few people who have a strong background in monetary policy are involved in crypto. Another reason is that usually, an element of denial exists in the minds of cryptocurrency advocates. Price volatility is impactful to usability to an extent that it is regularly suggested by Bitcoin critics to dismiss the technology completely, thus leading to defensiveness. Another important factor may be that the brightest minds in crypto are hyper-focused on solving issues like scaling. A stable coin that enables everyday transactions to occur using crypto is the best possible solution and fuel for adoption. It will allow every crypto service to operate using payments denominated in prices all people and businesses understand, fiat currencies.
It is likely a combination of these factors and others that has meant that only a few projects have focussed on creating a stable coin. Vadym Kurylovych believes that protocol improvements can be implemented in parallel with monetary policy and end-user utility. Everyone needs money in order to participate in the economy, the addressable market for money encompasses every market. It is the largest possible addressable market. Solving the medium of exchange problems will drive far greater adoption for crypto.
So it is quite clear that we need a stablecoin, the major question lies is there any need for a decentralized stable coin. A coin that relies on trust in a third party is subject to numerous existential threats that could undermine not just that stablecoin but any future stablecoin. When a government plans to seize the asset or block the trade through exchanges it might cause a major impact on the value of the stablecoin, potentially reducing it to zero. In the case of a third party theft, the asset the value of the stablecoin will drop to zero. Taking in count the above-mentioned facts derive a conclusion that centralized stablecoin could initially fuel the adoption fast but it also gives the impression that crypto is not money and can never be.
The solution to trusted third parties is decentralization, bitcoin has proven that definitively. It has proved to be superior to every other store of value over long time scales and will continue to be, precisely because it is decentralized. But Bitcoin was built on a monetary policy that ignored price stability, and so as a medium of exchange, it suffers. Another area where bitcoin suffers is trading. It is somewhat ironic that for the entire history of bitcoin it has been far more effective to create a centralized exchange to handle trading than to trade peer to peer. Unfortunately, centralized exchanges expose everyone in the ecosystem, whether they use them or not, to the threat of human fallibility. Something says Vadym Kurylovych ”that bitcoin was designed to counteract. So it is somewhat astounding that tens of thousands of people, myself included, who ostensibly believe in distributed consensus are willing to park value in someone’s proprietary off-chain database and hope they get that value back when they ask for it.”
Recently a solution to exchange centralization arose, the creation of decentralized exchanges (DEX). These are systems that do not rely on a central system to make a market. It enables users to trade directly with each other and without any need to have a trusted third party. There are some functional compromises with this approach in the short term. But in the longer term, new techniques will solve the usability issues and DEX’s will be as functional and frictionless as centralized exchanges are today. Almost all technical problems are solvable eventually, but the only way to remove the risk of human involvement is decentralization. But Bitcoin’s genius was to raise the cost of an attack above the potential reward, then because it is a distributed and public ledger no single group has the power to secretly abuse the system for their own gain.
Yet for DEX’s to be able to compete with their centralized counterparts we need stablecoins. Because one of the key benefits of centralized exchanges is that they can support fiat currencies. DEX’s can’t do that because they don’t have bank accounts integration. Stablecoins solve this problem, by acting as a short-term, stable, store of value.
The ideal world we can is one where you can transact day to day without being subject to the whims of a central authority. Here users will be able to purchase a stablecoin with fiat currency from a decentralized P2P exchange and deposit it into a DEX and then buy cryptocurrencies. At no point in this chain, the funds will be subjected to loss, theft or confiscation by a central authority. The users should have the option to be able to convert their cryptocurrency into stablecoin at any time and trade for goods or services in the real world because merchants will be far more possible to just accept a medium of exchange that’s denominated in their native decree currency.
Vadym believes “We have come very far in a short period, but this is only the beginning.” Bitcoin has solved centralization with respect to stores of value, and we are in the process of solving exchange and marketplace, but if we truly believe in decentralization we need to create it into all of the weather of this new economic framework. To make it a completely decentralized framework we would require decentralized store of value, options to make transactions and stable mediums of exchange. Once we’ve all 3 components it’ll become so much easier for brand spanking new crypto services to draw in users, because these new users will undoubtedly expect prices for these services to be denominated in their local fiat currency. Without a localized stable coin, wide user adoption can take so much longer.