We have often discussed the future of stablecoins, particularly those tied to the USD as a unit of account. Personally, the idea of algorithmic stablecoins makes the most sense since it creates a money supply that is outside the traditional banking system.
Nevertheless, stablecoins are going to fulfill the vision of Satoshi Nakamoto now that bitcoin is falling under the centralization of Wall Street.
The power of stablecoins was recently highlighted by the U.S. investment bank, Morgan Stanley. It was analyzing the monetary landscape and projecting how things could unfold in a world that appears to engaging in de-dollarization.
Blockchain is very powerful. We have a number of institutions that were established to handle cross border payments and settle them.
Beyond Trading
One of the areas that the report highlighted was the idea of using stablecoins beyond trading. This is something we discussed a great deal.
Trading assets simple makes it another asset class. It is on part with stocks, bonds, art, or a host of other items that are purchased and sold, mostly based upon speculation. This is the majority of the cryptocurrency market.
Stablecoins offer another approach. When it comes to trading activities, outside arbitrage, the primary use is as a parking spot. One tends to move from a risk on asset such as Ethereum to something stable. This is a strong use case for stablecoins yet only scratches the surface.
Ultimately, the payment for goods and services is crucial. This is the next step in the evolution. When people are using the stablecoins as the medium of exchange, that advances it to another level.
With the Hive Backed Dollar (HBD), we see that forming. There are areas in Venezuela, Ghana, and Mexico where HBD was used for purchased. Also, there are some online applications which accept HBD as payment. In fact, it will not be surprising if HBD (or a derivative thereof) is the pair for all transactions on the VSC Network.
It is crucial that money exists to facilitate trade. Commerce, i.e. that done by merchants and customers, is why money was created. The fact that we have money evolving where it is getting faster along with the removal of intermediaries means we can enhance the economic output tied to these currencies.
Here is what Morgan Stanley had to say:
“Dollar-backed stablecoins are set to have a profound impact on the financial sector, potentially reshaping how money is moved across borders.” In addition, Morgan Stanley acknowledged the exponential growth of dollar-linked stablecoins. It noted that processing transactions rose close to $10 trillion on public blockchains in 2022, emerging as a rival to traditional payment giants like PayPal and Visa.
It will be interesting to see what the numbers look like for 2023. The presumption that it will be higher fits completely.
HBD Is The Trojan Horse
When it comes to the valuation of the Hive ecosystem, HBD is overlooked. This is one of the more powerful components to what we are creating.
HBD is a base layer, algorithmic stablecoin that can serve as the primary medium of exchange for the Hive economy. When looking at this through the prism of the network-state, we realize how this is required. The key it that it is not controlled by any entity.
For a medium of exchange, volatility is the enemy. This means that most cryptocurrencies, including HIVE, fail. It is also why using the USD as the unit of account is where most are focusing. This is the most stable currency, far outpacing all else. What is ironic is the more stablecoins that get issued, along with increased transactions, the more stability the USD will receive.
Hence we are looking at a reinforcing system.
Another major aspect is we are dealing with something global in nature. That means the impact is not only felt in far away countries but it is also contributed to. Each transaction in Sucre, Venezuela enhances the stability of HBD. This naturally flows to the USD since they cannot be separated.
Once again, Morgan Stanley:
Furthermore, Morgan Stanley suggested that stablecoins wouldn’t challenge the USD’s dominance. Instead, the “continued evolution and growing acceptance” of stablecoins by conventional financial agencies could reinforce the U.S. Dollar as the dominant global currency. Additionally, Morgan Stanley views stablecoins as a critical catalyst in significantly altering the landscape of global finance.
Non-Nationalization
One of the issues with central bank digital currencies is we are still focusing upon nationalism. These are issues by particular countries. This means the reach is rather limited. Outside the USD, nothing is global. Part of the USD dominance is the fact it is the only true international (read global) currency. Even the EURO is nothing more than a regional currency.
A stablecoin such as HBD is international. Transactions can originate by anyone, regardless of where they are located. It has a constant unit of account which most are familiar with. Therefore, while governments can promote whatever form of currency they want, the judge and jury are merchants.
It is what people involved in economic activity decide that truly determines what form of money is utilized. Remember, money came about to facilitate trade.
Consider the difficulty of dealing with the yuan. While receiving payment might be simple enough, what does a vendor do after receiving the money? If it is not going to spend it, where does it get "parked"? With USD, treasuries can always be purchased. This is a liquid and robust market. Can the same be said for Chinese bonds? Does a company even want those?
Now let us take this same concept with HBD. With the idea of creating Hive Bonds, if a merchant accepts a large amount of HBD, that can be either placed into savings for a return or used (eventually) to purchase a bond. This is basically an extension of the stream of payments tied to HBD in a time vault. Also, the counterparty is simply the blockchain, not some nation.
Notice how much different things are when we move away from the nationalization aspect of things. HBD has the advantage of being international since it only exists in the digital world. This is not tied to any country whatsoever.
Asset backed stablecoins introduce this element by buying securities, mostly U.S. Treasuries, for the reserve. This brings the same problem back into the equation, although it is superior to the yuan situation.
Ultimately, most of the international banking system is USD denominated. This is why it is something that cannot easily be replaced.
HBD simply rides along on top of it, never touching the established banking system. It is part of a money supply completely outside either the domestic or international banks.
Morgan Stanley is starting to realize the potential of stablecoins. This is something we have discussed for a while now. The world is beginning to wake up.