Q: What are Stablecoins? | [Free #18]

Stablecoins may seem like an elementary concept, but there are important key concepts behind their creation that should influence how and why you use them. We explore all that, today!

Well hello there, my friends.

This is another week where we go over a basic concept that may seem rudimentary for experienced cryptocurrency users, but is actually complex enough to bear an in-depth explanation: Stablecoins.

Stablecoins are a useful device for moving more real world transactional value around without being exposed to the volatility of other deflationary cryptocurrencies.

Once you understand how these work, you’ll undoubtedly find a variety of uses for them in your cryptocurrency and blockchain strategies (we’ll delve into potential use cases of stablecoins in future issues, for sure as well).

Two plugs this week for things I think you’ll enjoy:

  • I’ll be appearing Intersections this week, a live show and podcast of Futurist Brian Solis and his co-host, economist John Kao. We’re going to be talking about blockchain and cryptocurrency, and with an economist in the mix, it should prove to be very interesting. You can watch live tomorrow at 10:30 AM PST.

  • This is a completely unpaid endorsement, but professional peer and friend R. Ray Wang released his new book “Everybody Wants To Rule The World yesterday, and if you’re in enterprise, or even trying to design a disruptive startup for the new economy, this book is a must read. Wang and I were sort of coopetition back when I was running things at TheCUBE, and his work at Constellation Research is probably known to many of you who subscribe here.

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Blockchain Bulletin

  • Senator Elizabeth Warren calls on SEC to regulate crypto exchanges. Sen. Warren penned a letter to the Securities and Exchange Commission, which regulates stock markets, to examine the risks that cryptocurrency exchanges pose to U.S. financial markets, reported MarketWatch.

  • Bank of America forms cryptocurrency research team. BofA is forming a team of analysts with the sole purpose of researching cryptocurrencies and underlying technologies – including blockchains – which will report to Michael Maras, according to CoinTelegraph.

  • Square signals intent to make a bitcoin hardware wallet. Merchant payments outfit Square is going ahead with its bitcoin hardware wallet that according to a tweet from its CEO, Jack Dorsey, which it had discussed last month, CNet reported.

Blockchain Behind the Scenes 

  • Circle is going public in $4.5B SPAC deal. Best known for being the cofounder of the USDC stablecoin, Circle Inc. announced its public listing via a special acquisition deal worth $4.5 billion with the intent to bolster the stablecoin ecosystem. 

  • Visa partners with 50 crypto platforms for merchant cryptocurrency payments. Visa Inc. intends to make it easier for merchants to accept cryptocurrencies by adding many more crypto-linked cards by partnering with over 50 major crypto platforms.

From the Groupchat!
Things we talk about on the Telegram channel.

  • Cypherpunk bitcoiner Lili created an informative and instructive thread on using GoTenna mesh networking technology to execute bitcoin transactions in the absence of traditional wireless connectivity.

  • One of the emails I got from this week's newsletter asked me what made me think was going to be government clap back is this current run up of the cryptocurrency world.

    Then I saw this quote in MoneyWeek the next day: “To avoid serious social and political discontent, leading to unrest and ultimately sociopolitical breakdown, the authorities will have to burst the bitcoin bubble before its macroeconomic importance becomes much greater.”

    I keep seeing more and more sentiment like this. Expect this to be the focus of an upcoming column in this newsletter (our Telegram thread).

  • The “virus” of the Bitcoin Standard (bitcoin, as legal tender) continues to spread, this time to Paraguay.

Blockchain Deep Dive: What are Stablecoins?

  • A stablecoin is a blockchain based fungible token that stays value-locked to some other type of asset (such as a dollar or an ounce of gold).

  • Most people think of USDCoin or Tether, but there’s a variety of types.

  • History: Stablecoins are tied to the first ICO, which was Mastercoin (July 2013).

  • History: Brock Pierce announced the launch of Realcoin, later to become Tether. (July 2014).

  • History: Bitshares launched their stablecoin project (BitUSD). (July 2014).

  • History: MakerDAO launched their seigniorage stablecoin DAI. (2015).

  • Between 2019 and today, we’ve gone from 16 notable stablecoins to over 200.

  • The only categorization I believe matters is how centralized they are.

  • Tether and the other large stablecoins face a huge amount of scrutiny partially because they are large, but chiefly because they are centralized.

  • The organizations behind them present a large target for regulators looking to make a name, establish precedent, or simply manipulate markets through fear, uncertainty and doubt.

  • From a pure-play cypherpunk maximalist perspective, centralized stablecoins present a non-negligible counterparty risk in the same way that centralized exchanges do: Not your keys, not your crypto.

  • Want more detail? Check out the paid version of this issue!