These days, the United States federal government seems very insecure. Discontent is rising, inflation is at an all-time high and nobody knows how to fix our financial mess. They will not look at their mistakes and adjust course. Instead, they will lash out against “wreckers”, whom they blame for their mistakes.
Let’s take one instance: The price of meat that you see increasing each week in the supermarket isn’t the result of printing huge amounts of money amid an anti-meat shame campaign. Some will insist. The White House says it is the “greedy meat conglomerates.”
At least there is an internal logic behind the anti-meatmania. The eggheads are planners. decidedMeat is bad, and it should be avoided. This will allow them to deflect any negative reaction onto producers who want the product eliminated. For government control, it’s a win-win situation.
But flailing often misfires. A recent hearing at the Congressional was about a crypto technology known as a stablecoin.
The Senate Banking Committee was made up of Democrats who attacked stablecoins for a variety of reasons, from nonsensical to unfair. This is the most bizarre thing. The U.S. Government should especially be welcoming stablecoin development right now.
A stablecoin’s idea is straightforward. A stablecoin is a cryptocurrency that’s 1-to-1 backed by an “stable” asset (get it?) Asset, typically the U.S. Dollar. This allows people to enjoy the benefits of blockchain transfer—quick, cheap, and international—without worrying about the vicissitudes of day-to-day crypto pricing. It sounds almost like full reserve banking.
Tether (from Bitfinex), USDC, Circle, BUSD (Binance), Dai (a smart-contract from MakerDAO) are the most well-known stablecoins. While the first three stablecoins are centralized, and backed with dollars or equivalents in dollar amounts, Dai is distributed and backed digital assets such as USDC and a cryptocurrency called ETH. They collectively manage around $140 trillion in value.
Many cryptocurrency enthusiasts actually despise stablecoins because they often tie to government money. However, stabilitycoins remain a vital component of decentralized finance and basic cryptocurrency transfers. They allow users to quickly swap between currencies on an exchange that is decentralized or DEX without any volatility.
In other words, stablecoins provide a means to bridge the crypto and fiat economy. Both “sides” benefit from these stablecoins. Stablecoins offer a secure way for cryptocurry users to trade tokens or transfer funds in DeFi operations. For their state currencies, and their international influence, the dominant governments have a significant anchor in crypto currency. It seems like the foundation of stable equilibrium.
It was not evident in the Senate chambers this week. The Senate Banking Committee Twitter account is here publicizedThe hearing was entitled “Stablecoins trap money with fine print, and pose a danger to our economy.” We must address stablecoin risks to protect Americans’ savings as well as our economy. [sic].” The graphic also showed two witnesses for stablecoin at the hearing. Senator Banking Committee Democrats didn’t attend.
Judging by the questions, chief among these systemic dangers to our entire economy is…the risk that Circle (which issues USDC) will mint physical coins that say the word dollar on them? This is a very serious topic. Unusual questions were also raised about the accessibility of stablecoins for those who wanted to buy a coffee from a local bodega, despite this not being the primary intended use case. Senator Elizabeth Warren darkly implied that this is a new economic system.someone can’t even tell if they’re dealing with a terrorist“—another sore subject.
This is a common feature of cryptocurrency hearings in Washington. However, when it comes down to stablecoins the fundamental policy question is clear.
Do you think stablecoins should be issued only to banks that are federally regulated, as the Biden Administration report recommended recently? Or is a more minimal and tailored regulatory framework, like the one we have for fintech firms like PayPal, more appropriate for stablecoin issuance, like Federal Reserve Board Governor Christopher Waller—who is primarily concerned with the dollar—recently supported?
It is easy to see how PayPal can be compared. Although stablecoins may seem risky due to their newness and use a blockchain technology, functionally they can be used. not much differentHow a company such as PayPal works. PayPal makes it easy to transfer money and holds a reserve.
PayPal reserves management is a major headache. Although we don’t know how many PayPal dollars exist, it is likely that you won’t be disturbed. We can observe its public ledger to see how many Tethers remain unpaid at any given time.
Although stablecoins can look very similar to PayPal, which has been around for over two decades now, the Senate Banking Committee believes that Tether could bring down the whole economy. This is fearmongering that limits your options and opens up new opportunities.
It would be helpful if the rules were to treat stablecoins in the same manner as we do companies like PayPal. No one disputes that stablecoin issuesrs must be responsible in managing their reserves.
Not the stablecoins, although they are already well-regulated and could benefit from more clarity, is what really matters. It’s not the stablecoins, though these can be regulated. However, DeFi economies that stablecoins create will remain a problem. Anti-stablecoin Senators repeatedly referenced the “DeFi casino” that—horror of horrors—allows people to take out zero percent interest loans on their cryptocurrency or lend out liquidity for a decent yield. DeFi may not be “unregulated” but it is possible to borrow liquidity for a decent yield. mostly youngInvestors who are mainly outsiders have a better chance of making and saving money. For insiders, who control what others can do with their cash, this is a problem. (How strange that Sen. Warren—that champion against the big banks—is attacking one of the largest areas of free competition that challenges it.)
DeFi isn’t perfect—nothing is. The high transaction fees that Ethereum charges eat into capital are the main problem. Many scams exist. A lot of people are lazy. Poorly coded smart contracts can cause users to suffer just like if someone was malicious. While these problems are very real, it’s not the best way to solve them.
DeFi is gaining popularity because of the failures of the U.S. government to safeguard American savers and stop “dangers for our economy.” These escape plans will be attacked by politicians who then blame the victims for their mistakes.
Bitcoin is a revolutionary technology. It can be stopped by politicians. It is possible to make bitcoin more difficult to access. They also have the power to control or threaten third-party developers of bitcoin services.
The DeFi ecosystem is vulnerable because it’s not clear how distributed many cryptocurrency services or protocols are. DeFi relies on either an Ethereum-killer or smart contracting protocol such as Ethereum.
Some rules can be triggered depending upon whether something is sufficiently centralized. But even so, regulation has more flexibility than people think. But let’s not be naïve. Satoshi Nakamoto chose not to reveal his identity in order not to allow government manipulation or worse. On the contrary, Satoshi Nakamoto, who is known for creating Ethereum, has previously organized a rollback of his chain.
DeFi will not be killed even if the government can clamp down custom-built smart contract platforms-based DeFi. Current DeFi functions are being transferred to the Bitcoin blockchain by projects like Sovryn and Atomic Finance. These two entities run on sidechains, while Atomic Finance would be entirely on chain. They wouldn’t require stablecoins.
Many government employees are struggling to accept the fact that they can’t control anything, or even comprehend it. Stablecoins offer the government an opportunity to establish a more relaxed regulatory framework for existing fintech firms, which would also help stabilize the dollar within the crypto-economy.
They will be too scared by the threat of DeFi to continue with this level of realpolitik. To try and kill DeFi it will not be hard to reduce stablecoins. This will make the government look bad, but will also leave many without financial opportunities.
DeFi based on Ethereum and competitors may be more difficult to manage because they have identifiable leaders. Current stablecoins, however, can also be controlled because of the link with the legacy financial system. However, these methods can be and are already being transferred to bitcoin which makes it much more difficult for users to monitor. While these apps will keep on rolling, although they are much more difficult to access, it is possible for the government to drag the most vulnerable people down while it struggles for control.