Stablecoins Remain Hard To Do

Robert McGrath's Blog

As I have remarked in the past, so-called “stablecoins”—cryptocurrencies backed by conventional “fiat” assets—are radically anti-Nakamotoan.  The entire point of Nakamotoan cryptocurrency is to unchain money from fiat.  Deliberate pegging is, well, the opposite of Nakamotoan.

Pegging is also hard to do, especially algorithmic pegging.   When exchange rates fluctuate, it is not trivial to maintain a basket of assets to back the digital assets.  If the algorithms don’t keep up, there can be disastrous runs and panics, which defeats the whole point of stablecoins.  It doesn’t help that the opacity of the algorithms makes it all faith-based, too.

This winter, I’m not surprised to read that yet another stablecoin has gone away [1].  This particular coin was pegged to the Euro, and, if I have this correct, was launched in September 2021.

The shutdown is attributed to “market forces”—it’s always the market, never the business plan or…

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