The Case for Furthering Global Stablecoin Utilization
Since Bitcoin’s anonymous founder, Satoshi Nakamoto, laid forth the magnum opus decentralization whitepaper, blockchain infrastructure set the plan to cut out greedy intermediaries in motion. Yet, the long-term goal has been slow to come to fruition. Corrupt actors continue to pocket money, and we still rely on banks as the end-all-be-all authenticator of financial information.
The more we live in both worlds, the more we see just how radical a shift cryptocurrency is. The fundamental innovation is that authentication happens at the source code level, and no centralized actors can manipulate transactions and steal money without adding much value to the population.
Fluctuating Purchasing Power is Barrier to Adoption
First and foremost, the extreme volatility of the cryptocurrency market is a considerable barrier to newbie investors just looking to understand the landscape a bit more. Take Bitcoin & Ethereum, the two largest cryptocurrencies, for example. They’ve dropped 70% from their peak in 2021 to their lows in mid-2022. Understanding this, we can see that the buying power of these assets is highly unpredictable.
Think of purchasing power as what you can buy with one unit of a given currency. We can take Bitcoin, Ethereum, and the U.S. Dollar (USD) as examples. 1 Bitcoin, 1 Ethereum & 1 USD will allow you to buy a different range of items. Whereas 1 USD may only get you a piece of candy at the grocery store, 1 Ethereum can buy you two new iPhones, and 1 Bitcoin can buy you a brand new Tesla Model X. In this way, we can see that the purchasing power or 1 Bitcoin is much greater than that of 1 USD.
The primary difficulty, it seems, is how to keep purchasing power stable in the crypto wild west.
Stablecoins Resolve the Purchasing Power Dilemma
The Purchasing Power Dilemna: The core innovation of blockchain is sound. Yet, the most common currency built on the blockchain is volatile, and thus the profoundly beneficial core innovation is being obstructed by the inaccessibility of its primary use case.
Stablecoins (digital currencies pegged to the most reliable fiat currencies) can solve this problem by reducing the variability in purchasing power and stabilizing decentralization of money for all. Although stablecoins aren’t risk-free, the method that stablecoins deploy to maintain their peg has been improving yearly. And as tragedies like UST befall the crypto space, the whole industry learns, and stablecoins become more antifragile.
When cryptocurrencies become the future financial system, stablecoins will inevitably become the on-ramp for all new crypto users to learn the basics of transacting in this digital epoch we live in. Moreover, given that they once again solidify purchasing power, anyone can make cryptocurrency transactions without worrying about the daily volatility and buying power changes. In short, the USD, EURO, and other top fiat currencies remain the most sound assets globally. However, for the global economic structure to shift towards decentralized ledger technology, crypto must work in a quasi-traditional-decentralized context, bridging the two worlds. Stablecoins do just that.
Furthermore, as we take a step back and widen the lens, we can see how stablecoins are also extremely valuable for citizens amid deflationary national tragedies.
Deflationary Tragedies and the Potential for Stablecoin Utilization
We can see that the problem is a double-edged sword. On the one hand, cryptocurrencies struggle for adoption in developed countries with stable economic systems because they’re too volatile. On the other hand, some developing countries have such deflationary economies that their fiat currencies are more volatile than even crypto. In other words, some governments are volatile; therefore, their native currencies are unstable too. Take Argentina, for example. Their fiat currency, the Argentinian Peso, has devalued by more than 95% in two years. 100 Argentinian Pesos in 2017 would have depreciated to 5 Pesos in 2019.
I bring this up to illustrate that stablecoins are a solution for citizens of these countries. Any Argentinian can buy and hold USD-pegged stablecoins, so their savings are stored in a more robust global currency and not subject to the runaway devaluation of their country’s fiat currency.
Conclusion
Overall, crypto won’t see widespread adoption unless the purchasing power remains relatively fixed. However, this is the innovation that stablecoins introduce, and the second-order effects are also positive.
Stablecoins will act as the global currency of the future by enabling truly borderless payment processing. Furthermore, they will empower citizens of unstable developing countries by allowing them to withdraw volatile fiat currency into stablecoin pegged to the value of more unwavering currencies like the USD & EURO. Finally, they will level the playing field for everyone that can find an internet connection.
