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What is the toughest job of a given stable coin? Maintaining the peg to the fiat currency of choice. We have seen many coins lose their peg and the panic that occurs when this happens is alarming. The panic, rather than the loss of a peg, destroys the stable coin and destroys the trust that holds the stable coin up.
In Decentralized Finance, stable coins are needed to protect people from losses, but also to have payment rails for centralized entities. Tether and Circle has some of the largest assets on the blockchain because of the importance of exchange and safety.
The issue is that these entities are centralized banks in the middle of decentralized finance. They are deeply entrenched in the exchange of value on chain and in real life. I recall sending my friends 60 USDC to cover my tab at a bar. Although, I am sure he would have easily accepted Ether, USDC was a much easier thing.
Something about the modern person exchanging value looks to have something that is stable, particularly in the short term. It was not always this way and before I explain further, I will explain money.
Money is a medium of exchange, unit of account and store of value. It is also salable across time and space. This means a few things. People have to be willing to exchange goods and services for a given medium of exchange. A bartender might not be willing to accept a tip of 0.0075 eth, or 10,000 satoshis, or 50 doge coin. If they don’t you’ll have to offer whatever currency they accept if you want the good or service.
As a unit of account, money functions to give us a sense of how many or how much. If I say, I just bought 10 dollars worth of eggs, you might have an image of how many eggs. Likewise, I can say I have 10 dollars and you have a sense of that value. Similarly, money should be super divisible, from 10 dollars → 1000 pennies, money is supposed to be able to be large and small values.
Money is also supposed to be a store of value, over both short and long periods of time. People are supposed to be able to save their monies over the course of their lives and the purchasing value should be maintained. Similarly, you should be able to have 400 dollars on the 15th and still have the same purchasing power on the 1st of the month.
Money must be salable over both time and space. You should be able to travel with millions in your pocket, as a crypto wallet can provide you. You should be able to send a ton of value without much stress and with great speed. Also, your money should not decay or be easily destroyed.
Lastly, I will introduce the concept of Hard & Soft Money. Hard money has a supply that is very difficult to expand, and subsequently is better store of value over the long run. Soft Money, however, has a supply that is easily manipulated and tends to be a better store of value in the short run.
I love the middle ages, as a history fan I read about it a ton. I read a book last year that changed a lot of my thought processes on the economic standing of the Middle Ages. The Author, Patrick Wyman, begins the book with A Note on Money and Currencies. He list several different currencies including the Venetian Ducat, Florentine Florin, or the English half-noble. He continues to describe silver currencies and others. Europe was awash in various currencies.
https://en.wikipedia.org/wiki/Ducat
But who actually cares about the money? Definitely not the woman who worked in the hillside to raise sheep with her husband. In fact her family didn’t care until they went to the market to sell their product, or to buy another product. People were not as connected as we are today, and even more many people were very poor.
The only thing that mattered to many of these people was did they eat. In the book entitled The Verge by Patrick Wyamn, he follows the lives wealthy kingdoms, warriors and bankers. These people, who regularly found themselves in different jurisdictions and nations needing their monies converted regularly to more trusted currencies.
In the book you learn of the organizations that monopolized the value of money. They controlled the content of the coin in question. There was a system, at least around the year 1500 where the book takes place, that places the Venetian Ducat above all and other currencies attempted to match up next to it.
For those who dealt in currencies, it was well known that it was good to hold wealth in the Venetian Ducat or the Florentine Florin over other assets. They were more trustworthy. This in turn allowed the state of Venice to reign supreme, and currency devaluation was not something that was an option. The distrust in the Ducat would send the nation into ruin.
Even in a time like this, the state could not create new currency without the acquisition of new gold. If the state could not find new gold, it had to levy taxes from its citizens. This was not politically feasible so the state had to look to benefit the citizens regularly so they might be willing to pay taxes. The state could not take on huge bets at the cost of the currency or the citizens because the currency was hard and citizens were unruly.
The competition of these nation states was fierce and, according to Patrick Wyman, lead to the 40 years that shook the world. Their respective currencies were used in ambitious & potentially state crumbling bets from the Spanish Inquisition to the Wars of the Holy Roman Empire and the discovery of the West Indies.
The advancements that occurred as a result of these actions is likely because the leaders of these nations had to be prudent and intelligent. Money was not unlimited and neither was opportunity. Nations had to compete with one another, constrained by their treasuries to attain common goals of expansion and innovation. It would be in this era that Queen Isabelle I of Castile would discover the amazing wonders of public debt, a way to stretch the balances of the treasuries and the capabilities of the state.
Large financial transactions were far apart and that was troublesome. Imagine the boats that transported monies from Alexandria to Constantinople & Constantinople to Venice; the baggage trains that went from Paris to Aragon. The monies on these transport was so difficult so financial transactions were decentralized because they were all physical.
The average Joe did not have to deal with these transactions considering they would rarely see a Ducat at all. Regular people lived off silver currencies. Even still they would rarely travel far enough to see the value of their monies change. The cost of your bread and ale was the same or similar over time, excluding shortages and whatnot.
The large currency blocks, which were close to one another, had to compete for holders. In the days of Rome, any given Caesar could devalue the currency because it was illegal to challenge his mint. Caesar had a monopoly on value, with little competition, but the Doge of Venice had to worry about far more.
Currency competitions can improve money as a whole for those who use the currency.
In the modern world, monopolies on value sits in the United States Federal Reserve. Through the use of regulation the modern system also has a monopoly on transactions as well. The approval of all the different transfer formats goes straight through the halls of this building and Capitol Hill. Lastly, like Caesar and unlike the Doge, the Federal Reserve has an overwhelming storehouse of force called the United States Military.
These three things reduce the ability for competition in the bazaar money to a single shop. With no competition, the shopkeeper will get sluggish and begin slacking on practices. He or she might even manipulate the system to their own benefit.
Currently, Google and Ticketmaster sit on Capitol Hill being challenged on the grounds of a monopoly in their respective fields. Meanwhile seated on Capitol Hill we have strong proponents of the monopoly on money.
Brad Sherman (D - CA 30th): “For five years I have been trying to ban consumer investments in Crypto.” Actually his first words. Certified Hater. “Crypto is a garden of snakes.” Mentions that cryptocurrency threatens the USD as reserve currency & the government in its ability to provide tax evasion from hidden money. “Inmate 14372 - SBF” Don’t trash SBF and then pass his bill. Added a letter from 19 republicans attacking the SEC for paying attention to the purported risk of cryptocurrencies. Request major bonuses, loans, and Campaign contributions to be reported. (40” - 45”) - From* Securities, Commodities, Fraud & Human Behavior*
In a few books that I have read, none more captivating than the End of Alchemy by Mervyn King, there is the riveting story of the Panic of 1907. It was this moment in history when New York City forcefully removed the crown that had lain so squarely on the head of London for much of known history.
https://www.federalreservehistory.org/essays/panic-of-1907
The Panic of 1907 was the last straw after a century of panics. One of the largest issues of was that there was no national standard by which banks could have a concerted reserve rate. Yes! Some banks had only 5% of deposits - meaning 95% of deposits had been lent out.
The story is the same. Some guy went out on leverage with Other People’s Money, written by Author John Kay, for copper mining companies. And the liquidity wasn’t there to deal with the issue.
The story of the Panic of 1907 (copper speculation bubble) can be found similar to the Panic of 1797 (land speculation bubble), Panic of 1837 (land speculation bubble), Panic of 1857 (gold speculation bubble), Panic of 1873 (railroad speculation bubble), and the Panic of 1893 (railroad speculation bubble). See Here
In these moments, the value of money and its accessibility was tarnished time and time again. Why deposit in a bank when I can keep it in my hand? Why put your trust in someone else to maintain your fortunes? The banking industry learned from this and, under the leadership of John Pierpont Morgan, composed the Federal Reserve.
Yes I know that Rockefeller owned Standard Oil. It just makes more sense to use Standard Money as a play on the era of the robber baron still existing in the world today.
Now, there is a tale about the secret meeting on Jekyll Island off the coast of Georgia in 1910. The meeting was very real and a few private hands built the money we hold today. There was a huge issue. No one wanted to keep dealing with the panics of old now. America was far too rich & Morgan wasn’t reaching in his pocket again to fix it.
https://www.federalreservehistory.org/essays/jekyll-island-conference
Well, the Bankers of the United States, in Order to for a more perfect money, establish stability, insure domestic assets, provide for common transfer, promote private wealth, and secure the Blessings of J. P. Morgan to themselves and their posterity, did ordain and establish the framework of the Federal Reserve. - I am proud of this one
What was the result? A central bank that could command other banks to operate within the guidelines that were set. They could control reserve rates and provide liquidity to banks in short. They could keep informed of credit and other forms of money. The Federal Reserve, at least initially, was simply a way to always have a good guess on the content of the market.
It wasn’t until the Great Depression and Post-World War II era that it began stepping out to create a public identity amongst the public.
https://www.federalreservehistory.org/essays/bretton-woods-launched
What the Federal Reserve did manage to provide for many years was a stable currency for the world with no relevant competition. Through the gold standard, and even thereafter, money was much more stable amongst the system. They money was so stable it has been weaponized time and time again for the benefit of the US Government.
We abandoned the system of free money in this country to avoid panics. The lack of financial panics gave the US a very peculiar power in geopolitics and led to its position as a superpower.
Humans are naturally addicted to the things they can predict. We are in love with certainty, but the most resilient things in life are fluid and dynamic. For all of human history, empires have risen and fell with currencies that were subject to panics and bubbles. It is, sadly, apart of the human experience.
It was normal, except in times of a great military force, to have many different currencies. These currencies would compete with one another. The monopolization of value has reduced the incentive to protect the value of money because there was no competition.
Bitcoin, followed by Ether, challenge this notion. These monies are now stronger than ever and can challenge the dollar, euro, yen and many more currencies if we can stomach the daily volatility. It is not just us, but stores and their suppliers have to accept these currencies.
Running away from stability is likely the most difficult thing people can do, but it is important that we recognize that we live in a world where everything is constantly changing. The act of change is what is stable, and money should reflect nature.
What is the toughest job of a given stable coin? Maintaining the peg to the fiat currency of choice. We have seen many coins lose their peg and the panic that occurs when this happens is alarming. The panic, rather than the loss of a peg, destroys the stable coin and destroys the trust that holds the stable coin up.
In Decentralized Finance, stable coins are needed to protect people from losses, but also to have payment rails for centralized entities. Tether and Circle has some of the largest assets on the blockchain because of the importance of exchange and safety.
The issue is that these entities are centralized banks in the middle of decentralized finance. They are deeply entrenched in the exchange of value on chain and in real life. I recall sending my friends 60 USDC to cover my tab at a bar. Although, I am sure he would have easily accepted Ether, USDC was a much easier thing.
Something about the modern person exchanging value looks to have something that is stable, particularly in the short term. It was not always this way and before I explain further, I will explain money.
Money is a medium of exchange, unit of account and store of value. It is also salable across time and space. This means a few things. People have to be willing to exchange goods and services for a given medium of exchange. A bartender might not be willing to accept a tip of 0.0075 eth, or 10,000 satoshis, or 50 doge coin. If they don’t you’ll have to offer whatever currency they accept if you want the good or service.
As a unit of account, money functions to give us a sense of how many or how much. If I say, I just bought 10 dollars worth of eggs, you might have an image of how many eggs. Likewise, I can say I have 10 dollars and you have a sense of that value. Similarly, money should be super divisible, from 10 dollars → 1000 pennies, money is supposed to be able to be large and small values.
Money is also supposed to be a store of value, over both short and long periods of time. People are supposed to be able to save their monies over the course of their lives and the purchasing value should be maintained. Similarly, you should be able to have 400 dollars on the 15th and still have the same purchasing power on the 1st of the month.
Money must be salable over both time and space. You should be able to travel with millions in your pocket, as a crypto wallet can provide you. You should be able to send a ton of value without much stress and with great speed. Also, your money should not decay or be easily destroyed.
Lastly, I will introduce the concept of Hard & Soft Money. Hard money has a supply that is very difficult to expand, and subsequently is better store of value over the long run. Soft Money, however, has a supply that is easily manipulated and tends to be a better store of value in the short run.
I love the middle ages, as a history fan I read about it a ton. I read a book last year that changed a lot of my thought processes on the economic standing of the Middle Ages. The Author, Patrick Wyman, begins the book with A Note on Money and Currencies. He list several different currencies including the Venetian Ducat, Florentine Florin, or the English half-noble. He continues to describe silver currencies and others. Europe was awash in various currencies.
https://en.wikipedia.org/wiki/Ducat
But who actually cares about the money? Definitely not the woman who worked in the hillside to raise sheep with her husband. In fact her family didn’t care until they went to the market to sell their product, or to buy another product. People were not as connected as we are today, and even more many people were very poor.
The only thing that mattered to many of these people was did they eat. In the book entitled The Verge by Patrick Wyamn, he follows the lives wealthy kingdoms, warriors and bankers. These people, who regularly found themselves in different jurisdictions and nations needing their monies converted regularly to more trusted currencies.
In the book you learn of the organizations that monopolized the value of money. They controlled the content of the coin in question. There was a system, at least around the year 1500 where the book takes place, that places the Venetian Ducat above all and other currencies attempted to match up next to it.
For those who dealt in currencies, it was well known that it was good to hold wealth in the Venetian Ducat or the Florentine Florin over other assets. They were more trustworthy. This in turn allowed the state of Venice to reign supreme, and currency devaluation was not something that was an option. The distrust in the Ducat would send the nation into ruin.
Even in a time like this, the state could not create new currency without the acquisition of new gold. If the state could not find new gold, it had to levy taxes from its citizens. This was not politically feasible so the state had to look to benefit the citizens regularly so they might be willing to pay taxes. The state could not take on huge bets at the cost of the currency or the citizens because the currency was hard and citizens were unruly.
The competition of these nation states was fierce and, according to Patrick Wyman, lead to the 40 years that shook the world. Their respective currencies were used in ambitious & potentially state crumbling bets from the Spanish Inquisition to the Wars of the Holy Roman Empire and the discovery of the West Indies.
The advancements that occurred as a result of these actions is likely because the leaders of these nations had to be prudent and intelligent. Money was not unlimited and neither was opportunity. Nations had to compete with one another, constrained by their treasuries to attain common goals of expansion and innovation. It would be in this era that Queen Isabelle I of Castile would discover the amazing wonders of public debt, a way to stretch the balances of the treasuries and the capabilities of the state.
Large financial transactions were far apart and that was troublesome. Imagine the boats that transported monies from Alexandria to Constantinople & Constantinople to Venice; the baggage trains that went from Paris to Aragon. The monies on these transport was so difficult so financial transactions were decentralized because they were all physical.
The average Joe did not have to deal with these transactions considering they would rarely see a Ducat at all. Regular people lived off silver currencies. Even still they would rarely travel far enough to see the value of their monies change. The cost of your bread and ale was the same or similar over time, excluding shortages and whatnot.
The large currency blocks, which were close to one another, had to compete for holders. In the days of Rome, any given Caesar could devalue the currency because it was illegal to challenge his mint. Caesar had a monopoly on value, with little competition, but the Doge of Venice had to worry about far more.
Currency competitions can improve money as a whole for those who use the currency.
In the modern world, monopolies on value sits in the United States Federal Reserve. Through the use of regulation the modern system also has a monopoly on transactions as well. The approval of all the different transfer formats goes straight through the halls of this building and Capitol Hill. Lastly, like Caesar and unlike the Doge, the Federal Reserve has an overwhelming storehouse of force called the United States Military.
These three things reduce the ability for competition in the bazaar money to a single shop. With no competition, the shopkeeper will get sluggish and begin slacking on practices. He or she might even manipulate the system to their own benefit.
Currently, Google and Ticketmaster sit on Capitol Hill being challenged on the grounds of a monopoly in their respective fields. Meanwhile seated on Capitol Hill we have strong proponents of the monopoly on money.
Brad Sherman (D - CA 30th): “For five years I have been trying to ban consumer investments in Crypto.” Actually his first words. Certified Hater. “Crypto is a garden of snakes.” Mentions that cryptocurrency threatens the USD as reserve currency & the government in its ability to provide tax evasion from hidden money. “Inmate 14372 - SBF” Don’t trash SBF and then pass his bill. Added a letter from 19 republicans attacking the SEC for paying attention to the purported risk of cryptocurrencies. Request major bonuses, loans, and Campaign contributions to be reported. (40” - 45”) - From* Securities, Commodities, Fraud & Human Behavior*
In a few books that I have read, none more captivating than the End of Alchemy by Mervyn King, there is the riveting story of the Panic of 1907. It was this moment in history when New York City forcefully removed the crown that had lain so squarely on the head of London for much of known history.
https://www.federalreservehistory.org/essays/panic-of-1907
The Panic of 1907 was the last straw after a century of panics. One of the largest issues of was that there was no national standard by which banks could have a concerted reserve rate. Yes! Some banks had only 5% of deposits - meaning 95% of deposits had been lent out.
The story is the same. Some guy went out on leverage with Other People’s Money, written by Author John Kay, for copper mining companies. And the liquidity wasn’t there to deal with the issue.
The story of the Panic of 1907 (copper speculation bubble) can be found similar to the Panic of 1797 (land speculation bubble), Panic of 1837 (land speculation bubble), Panic of 1857 (gold speculation bubble), Panic of 1873 (railroad speculation bubble), and the Panic of 1893 (railroad speculation bubble). See Here
In these moments, the value of money and its accessibility was tarnished time and time again. Why deposit in a bank when I can keep it in my hand? Why put your trust in someone else to maintain your fortunes? The banking industry learned from this and, under the leadership of John Pierpont Morgan, composed the Federal Reserve.
Yes I know that Rockefeller owned Standard Oil. It just makes more sense to use Standard Money as a play on the era of the robber baron still existing in the world today.
Now, there is a tale about the secret meeting on Jekyll Island off the coast of Georgia in 1910. The meeting was very real and a few private hands built the money we hold today. There was a huge issue. No one wanted to keep dealing with the panics of old now. America was far too rich & Morgan wasn’t reaching in his pocket again to fix it.
https://www.federalreservehistory.org/essays/jekyll-island-conference
Well, the Bankers of the United States, in Order to for a more perfect money, establish stability, insure domestic assets, provide for common transfer, promote private wealth, and secure the Blessings of J. P. Morgan to themselves and their posterity, did ordain and establish the framework of the Federal Reserve. - I am proud of this one
What was the result? A central bank that could command other banks to operate within the guidelines that were set. They could control reserve rates and provide liquidity to banks in short. They could keep informed of credit and other forms of money. The Federal Reserve, at least initially, was simply a way to always have a good guess on the content of the market.
It wasn’t until the Great Depression and Post-World War II era that it began stepping out to create a public identity amongst the public.
https://www.federalreservehistory.org/essays/bretton-woods-launched
What the Federal Reserve did manage to provide for many years was a stable currency for the world with no relevant competition. Through the gold standard, and even thereafter, money was much more stable amongst the system. They money was so stable it has been weaponized time and time again for the benefit of the US Government.
We abandoned the system of free money in this country to avoid panics. The lack of financial panics gave the US a very peculiar power in geopolitics and led to its position as a superpower.
Humans are naturally addicted to the things they can predict. We are in love with certainty, but the most resilient things in life are fluid and dynamic. For all of human history, empires have risen and fell with currencies that were subject to panics and bubbles. It is, sadly, apart of the human experience.
It was normal, except in times of a great military force, to have many different currencies. These currencies would compete with one another. The monopolization of value has reduced the incentive to protect the value of money because there was no competition.
Bitcoin, followed by Ether, challenge this notion. These monies are now stronger than ever and can challenge the dollar, euro, yen and many more currencies if we can stomach the daily volatility. It is not just us, but stores and their suppliers have to accept these currencies.
Running away from stability is likely the most difficult thing people can do, but it is important that we recognize that we live in a world where everything is constantly changing. The act of change is what is stable, and money should reflect nature.
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