Reserve banking

Stablecoins are the crypto version of fractional reserve banking – op-ed bitcoin news

Stablecoins offer much sought-after stability in volatile crypto markets. It is sometimes even said that they affect the price of bitcoin drastically. Attached (USDT). However, it is more important to delve into the reality that some stablecoins are bad for bitcoin adoption. A sort of fractional reserve bank 2.0.

Also Read: Tron-Based Tether Inflated To Over 900 Million Tokens, Almost 22% Of Total Supply

Supported by the State

Stable coins can in a sense be divided into two broad classes: those that depend on fiat money (government issued money) and those that leverage other non-fiat assets or commodities for their value. USDT, for example, is a centrally managed asset that depends entirely on the fiat money system for the stability of its value.

Where Tether started with claims that it was guaranteed “1 to 1” and refundable in US dollars, that policy has since changed. Tether silently amended this description to include “traditional currency and cash equivalents and … other assets and receivables from loans made by Tether to third parties.” Understandably, this change caused an uproar in the crypto community from individuals wary of opaque verbiage.

It is argued that as long as the asset is backed, it cannot be compared to fractional reserve bank, the process used by government-regulated banks to issue more money than is actually available, in order to provide liquidity and grease the wheels of an economy. In September of last year, even that idea was called into question, however, when Tether co-founder William Quigley said:

Whether or not Tether was dollar-backed or not, it wouldn’t matter if everyone agreed to take Tether and value it themselves at a dollar.

With the ongoing mass impression of new ties, policies with vague terms, multiple prosecutions and the lack of in-depth and open information checks, the statement seems to imply that the tie could just as easily be backed by faith as it is by dollars. As tether is the most widely used stablecoin according to reports, and its market capitalization has grown from around $ 10 million to over $ 4 billion in the space of three years, believers do not seem to miss it.

Ironically, this way of looking at a faith-based currency is similar to the system that US dollars themselves are built on, with one key difference: the tether doesn’t force you to believe it. The USD is of course no longer backed by gold as it once was, but by use, en masse. Use, which is the result of the lack of any other safe option. Refusing to trade within the bounds of the USD-based paradigm often results in kidnappings, caging, fines or the like, and as such, it is easier to agree and come to an agreement. to get along than to see his life ruined.

In a very real sense, the tether can be viewed as a trust asset in addition to a government trust asset. Centralized, opaque and dependent on faith rather than the true viability of the market for its value. That’s not to say it’s not useful or viable in today’s state-dominated environment, but for many, bitcoin’s purpose was to escape this madness – not to embrace it without asking questions.

Stronger proposals for stability

Tokens like DAI and DGX seek to provide stability tied to traditional assets through smart contracts with crypto and gold guarantees, respectively. In the case of DAI, the fiduciary fiduciary system is not necessary, but serves as a point of reference. Smart contracts allow decentralization as a central point. As for the physical gold backed DGX, this is not magic fiat paper, but proven grams of gold giving stability a little more volatile than fluctuations in the value of the USD, but a lot more economically sound in the long run.

the Creator’s website affirms: “The Dai is a stable and decentralized currency which does not discriminate. Any business or individual can reap the benefits of digital currency. This proposal seems far from the central bank dependent on Tether. Or Digix (DGX) is affected, even though the supporting asset is stored in a centralized vault, it is at the very least a real and proven store of value, and not just government paper that can be printed willy-nilly. will. Digix goes so far as to specifically brag about “zero fractional reserves”.

Tokens such as those created through Bitcoin Cash’s Simple Ledger protocol or Ethereum’s ERC20 standard can also play a non-fiduciary role in ensuring the stability of crypto, and their popularity and usefulness is increasing. BCH developer Tobias Ruck recently observed:

I think #BitcoinCash will be the platform for many in-person and online payments in the near future. I don’t think the unit of account used will be BCH. Volatility makes this impossible. BCH will be like oil to make payments. As Mises said, commodities first, then money.

Tear off the FRB dressing

Ruck might be on to something. Until bitcoin becomes so ubiquitous in the world, stablecoins are no longer needed, viable crypto networks can serve as underlying platforms to facilitate payments in other ways. SLPs and other such tokens would likely continue to play an increasingly important role even after a hyperbitcoinization event, due to the unique features and potential for customization they offer. Yet the volatility of crypto is creating a pressing demand for stability in the market, right now.

That brings us back to the loop, back to the original problem: if the goal of bitcoin is to provide financial freedom and a lifeboat away from the sinking of violent fiat, why bother so much about stabilizing the backlog? A lifeboat is supposed to be detached from the damaged vessel, after all, and not be attached to it indefinitely. Adopting assets that are inherently non-biased towards a decentralized paradigm without authorization ultimately only dilutes and slows the adoption of those assets that are.

No amount of USD reserve pledges equates to true creditworthiness or economic soundness. No centralized USDC, based on fractional reserves or USDT – or whatever it is in between – will help a homeless man in India cross the KYC gateways to gain financial sovereignty and economic freedom. No asset approved by New York’s DFS is going to rob the state of its ability to bail out mega-banks and businesses with taxpayer dollars. 11 years after Satoshi Nakamoto placed his post on a bank bailout in the genesis block of Bitcoin, the crypto space is riddled with milquetoast calls for more centralized regulation and pathetic cries of celebration over the making of the same. .

It’s unclear if Tether and others are lying, printing tokens in a fractional reserve style on top of the already fractional fiat banking system. It is also only a secondary concern. The real sense in which many popular stablecoins can be considered crypto FRBs is in the way they proudly hang on the baited hook of this same violent system, where bitcoin has given a math-based major in 2009 and moved away, To hell with stability restricting freedom.

What do you think of stablecoins? Let us know in the comments section below.

Disclaimer: This is an opinion piece. The opinions expressed in this article are those of the author. is not responsible for the content, accuracy or quality of the opinion piece. Readers should exercise due diligence before taking any action related to the content. is not responsible, directly or indirectly, for any damage or loss caused or allegedly caused by or in connection with the use of or reliance on any information contained in this opinion piece.

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Tags in this story

Anarchism, Bitcoin, BitFinex, Central Bank, Cryptocurrency, DAI, Digix, Economic Freedom, Economy, Fiat, Fractional Reserve Bank, Government, Regulation, Stablecoin, Tether, USDC, USDT, Volunteering

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