The New York Financial Services Department (NYDFS) approval of the Gemini dollar and Paxos standard two stable coins, which are distributed by the Ethereum, erupted in a very large reaction from both home and abroad. It triggered many people’s concern about the hegemony of the dollar and its impact on the International monetary financial system.
Theoretically, the algorithm of the central Bank of the stable coins may best fit the blockchain idea. However, it is not easy for them to run long and steady.
International studies of currency and stable coins:
In fact, China’s research in this area started earlier than the United States, and has been in progress for years. However, this is not only a matter of expanding the opportunity of currency influence, but is also related to capital control, anti-money laundering and numerous other aspects. The more stable coins anchored in the country’s currency will certainly facilitate more transactions, but there is no guarantee that these transactions will be compliant or economically beneficial.
From the modern history of the world, the establishment of the international monetary system has often been accompanied by technological innovation. With the advent of the era of Big machine production, Britain brought the pound to the world through colonialism. With the end of World War II and the establishment of the Bretton Woods system of the dollar and gold binding, the United States established a new international financial order through a “stick” plus “dollar” strategy, making the dollar a global currency. But those may no longer be the most prevalent currencies by the next generation as stable coins, blockchain and bitcoin continue to make technological advances.
There are three modes of stable currency:
- USDT, TUSD, GUSD
These are the Fiat trust model, the equivalent amount of USD for the same amount of stable coins, and the custodian needs to guarantee 100% of the reserve.
- Bit CNY, Dai of MakerDAO
This model is backed by an excess of encrypted assets behind each of the stable coins, such as Ethereum, Bitcoin, and so on. It is entirely on the chain, transparent, can be audited and has full assets. When the demand increases, the user can create a new stable currency balance premium by means of collateral.
- Algorithmic Central Bank mode
This model has no endorsements of assets behind it. Instead it tries to stabilize the price by adjusting the amount of supply. There is a big problem with this model—the system can raise the premium by raising the price, but if the public loses confidence in it, it is easy to get into a vicious circle because there is no asset behind it.
Importance over currency control
It’s a game between great powers, after the advent of the atom bomb, the whole world is no longer dominated by the military, but is more focused within the economic, financial and other levels of covert competition.
The New York Financial Services department launch of the Gemini Dollar and Paxos standard reflects the government’s will in a way. In addition, since it is anchored in the United States dollar, it has benefited most from the dollar itself when it circulates in international markets. At the same time, the use of blockchain technology, in addition to the dollar endorsement, is a central, transparent, non-tamper technical endorsement, which makes it more credible than the real dollar.
How can stable coins possibly create a more equal market for countries?
The US dollar settlement system requires that the world trades oil only in dollars, that is, if you want to transact, it must be in dollars. Therefore, if you have bad relations with the United States, the United States will punish you. Leaving you without dollars to buy oil; or you even if you have the U.S. dollar but the United States puts sanctions on your country, the dollar you own is a waste of paper.
But on the other hand, stable coins are not controlled by one country and are a new currency that has yet to be regulated. After all, the stable coin is a digital currency that can be spread around the world in a very short time, and the market can be harvested faster.
What to expect next?
Stable coins are starting a new revolution with market bargaining chips, hedging tools and even possible new international trade tools. But they still have a lot of resistance ahead: every link, from product, technology, policy, to operation promotion, can become a trap, kill one kind of new stable coins. The future of stable coins is yet to be determined and could still be a long time coming.
One thing that does seem inevitable however, the change of the international monetary market place as we know it.