Stablecoins are a class of cryptocurrencies which are price-stable — this means that it is pegged to another unit of value such as the USD. The foremost cryptocurrencies, Bitcoin and Ethereum, have seen meteoric rises in value since their inception. Naturally, it is seemingly counter-intuitive as to why anyone would want a cryptocurrency which is price-stable. However, price-stable cryptocurrencies have extremely far-reaching benefits across the entire cryptocurrency ecosystem, so much that it is even dubbed the "Holy Grail of Cryptocurrencies". There is a huge market for a censorship-resistant and decentralized currency which is price-stable.
Firstly, hyper-volatile prices are problematic for a very specific set of financial-contracts, particularly time-based contracts. If someone was to make a bet for 1 BTC that an event will happen in a year, he is exposed to the risk of the event not happening and the risk that BTC will drop in value. This makes it difficult to calculate risk, and hence calculate odds on these types of financial contracts. Other time-based contracts include salaries and loans. Secondly, there exist a large number of crypto-traders who need a fiat-stable position to be able to jump in and out of trades quickly. This is the market that Tether is going for, and is already a multi-billion dollar market even in the early days of crypto. Lastly and probably most importantly, stablecoins are possibly the best definition for a new, sound, form of money and the natural evolution over fiat currencies. To understand this point, we must first understand the history of money and its purpose in society.
The Story of Money
Money is extremely complex and severely misunderstood, but at its core, it is a technology which solves a single problem — the double coincidence of wants. In a barter economy, if party A and party B both have items which are objectively equally valuable, they may still not be able to trade with each other because one party does not want the specific item the other party desires. Hence, money exists as a medium of exchange — a way for multiple parties to trade regardless of the specific desires of each individual.
Consequently, using a common medium of exchange creates price discovery in a market. By having a single currency, suppliers are able to put a numerical value on how much the item they produce is worth. Having explicit prices is much better than a barter economy — it creates orders of magnitude more efficiency in trade, every market participant can precisely indicate how much they value everything.
Lastly, the last use of money is as a store of value. Instead of having to store physical goods, some of which may not be durable, people can now keep pieces of metal which will not decay over time. Money allows people to abstract away the value of goods and services into a representative form of value, whether it is a large piece of rock or a metal coin.
It is extremely clear that money, the technology, is a fundamental step forward for society to exchange value and interact with each other more effectively. Money has evolved over time, from extremely primitive forms like shells to stones, then precious metals, then pieces of paper and now bits on the Internet. In each iteration of money, we have made progress in its utility — paper-money is much easier to trade than large Rai stones. We must see money as a social technology built to solve problems — and this technology can and should be improved upon.
However, the more money one amasses, the more purchasing ability he has, and hence the more power he has in a market. This dynamic creates the last, and not universally accepted use of money — as a form of power which extends beyond purchasing power, and includes things like social influence and political power. Naturally, this gives rise to power struggles on many levels, the most significant being political power struggles. By pushing for the US Dollar to become the global reserve currency during the Bretton Woods Conference, the United States snatched up an inordinate amount of power. Although the US has managed the USD sufficiently well without any major currency crises, it is obvious that this kind of power should not be concentrated in such few hands. Bitcoin and cryptocurrencies created an opportunity for money to become decentralized — clearly the next step for the evolution of money the technology.
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