tl;dr: Throughout history, a reserve currency, which is a form of stablecoin, arises when it is linked to a vital commodity. Figure out what the next vital commodity will be. The coin that is connected with that will be the stablecoin.
One of the freshest takes I’ve seen recently on the ongoing stablecoin debate comes from David Choi in his post, “Proof-of-Nuclear-Bombs”: a most reliable design for stablecoin utility (Part I).
I think it resonated with me for two reasons.
First, I’ve grappled with crypto stablecoins for a while now (see Stablecoins: Essential, Remarkable or Ridiculous?, always maintaining an “it’s possible, but I’m not sure yet” stance.
Despite my admiration for the crypto-economic elegance of Maker, I still just don’t know. (For a primer on stablecoins, see this VentureBeat article)
Second, I really appreciated how David put the concept of global reserve currencies, which are stablecoins by another name, into a historical context.
What the Stablecoin Buys Matters
David’s post is long and brilliant, tying in Greek philosophy as much as he ties in history. However, I think the point that he drove home is that stablecoins are kind of like beauty, very much in the eye of the beholder.
Stablecoins/reserve currencies are not inherently stable or reserve, they are a function of consumer demand. The coin that most reliably can buy the commodity with the highest demand BECOMES the stablecoin.
The British pound wasn’t the reserve currency because the Royal Navy was so strong. It was the reserve currency because Britain controlled the tea trade from India and China.
Romans controlled salt. The Dutch controlled spices (Dutch East India company anyone?)
The USD is the currency of oil. This also explains why countries that don’t like the US are working so hard to get away from that. China is trying to get people to pay for oil with yuan and we all know about the Petro.
The good news, for individuals, is that reserve currencies and, by extension, stablecoins are not imposed. They are accepted because of what they buy.
Ah, the free market reigns.
The Winning Crypto Stablecoin Will Be…
Cryptocurrencies are the ultimate free market for currencies. I mean, literally anyone can launch one. So, the supply is on the road to infinity.
Demand? Well, that’s another thing entirely.
The key factor, as David points out, is that it will depend on what will be the vital commodity of the digital age.
If a digital currency truly wants to be separate from the USD and be in the running as the next world reserve currency, then it must value capture the circulation of “oil of tomorrow.”
In the long run, the coin that enables the purchase of the most sought after digital commodity becomes the stablecoin.
At least that is how I interpreted it.
Thoughts on Potential Stablecoins
If David is right, this has two potential impacts.
The first is that the current batch of stablecoins will need to figure out which asset out there to align themselves with.
The second is to look at projects that are focused on vital commodities and observe to see if they are able to develop circular economies based on their tokens.
My first thought when I read David’s post was, therefore, “Data.” After all, it’s the new oil, right? And my second thought was “attention” since the attention economy has been on my mind for over 10 years now.
If it’s data, I would look at something like Ocean Protocol for starters. If it is attention, then you start thinking about the Basic Attention Token from Brave (NSM partner) or Steem from Steemit AMP from HyperSpace. And if it is your personal reputation for integrity and wisdom, then it would be a GEN token from DAOstack.
Heck, it could be Ethereum if only because that’s how you pay for CryptoKitties and Non-Fungible Tokens may be the vital commodity. I have no idea.
I think it’s fair to say that the market also has no idea…yet. One day, however, it will and perhaps we will all realize the prescience of David’s blog post.