Previously, the Blockchain Institute published an article about Libra"If Libra succeeds, will Bitcoin disappear?》, the general idea is that Libra, this type of stable currency, if successfully issued, will capture most of the cryptocurrency payment share, which will affect the payment attributes of BTC, thereby affecting the liquidity of BTC.

The author of this article believes that the stablecoin market will not be dominated by one company. In the future, there will be both legal digital currencies issued by the state and privately issued stablecoins (USDT, Libra, etc.), but cryptocurrencies with payment attributes such as BTC and BCH are still There will be a place.

For any liquid asset, liquidity is crucial. The implementation of the national legal digital currency will not be achieved overnight, and it will not be implemented in the short term. The competition for liquidity will focus on stable coins such as USDT, Libra, and BTC. On cryptocurrencies with payment attributes.

The popularity of stablecoins will bring a lot of traffic and compete for market liquidity, but the blockchain is in the early stages of development and there is still a lot of room for growth.The popularization of stablecoins will bring more traffic growth to BTC, BCH, etc. than the competition for liquidity, but it may reduce the dimensionality of some cryptocurrencies that focus on payment functions.

The increase in users brought about by the large-scale popularization of stablecoins will be beneficial to the entire industry in the short to medium term, and may have an impact on some projects in the long run.

Since 2019, stablecoins have been very popular, as if the market throughout this year was driven by stablecoins.

At the beginning, it was the concept of Libra, which drove Bitcoin to rebound from $3,000 to $13,000. Now it is the theory that USDT may explode, which makes the market have great concerns about the digital currency market, so the overall price has pulled back a bit—at least That's what the media said.

At the same time, there is such a joke: every time Bitcoin rises, the reason explained by the media must be because of the additional issuance of USDT; every time the price of Bitcoin falls, the reason explained by the media must be because USDT has been investigated.

Although it is just ridicule by the public, these ridicules are all related to stablecoins, which also illustrates the important role of stablecoins from the side.

Stablecoins are indeed a very important infrastructure for the blockchain industry, so much so that there is a saying that the significance of stablecoins to blockchains is even more important than Bitcoin. If Bitcoin can eventually bring 100 million users to the blockchain, then the stable currency is at least 1 billion or 2 billion, and the difference between the two is an order of magnitude.

Since stablecoins are so important, it is necessary to think systematically about stablecoins at an overall level. The following are my recent thoughts and I would like to share them with you.

2. Stability is a man-made state

From a philosophical point of view, change is absolute and static is relative; from the perspective of currency and investment, fluctuation is absolute and stability is relative.

We often talk about stable coins. The stability mentioned here is not a natural state, but a man-made state; the real natural state must not be stable, and stability must be maintained by external forces. At this time, external forces, such as the central The coercive guarantee of the organization, such as algorithms, such as mortgages and so on.

3. All stable coins are essentially simulations of fiat currencies

Stability must be relative to a certain standard. Without standards, there is no stability at all.At present, the stable coins in the blockchain world are all stable relative to the legal currencies such as USD and CNY.

So these stablecoins are named: USDT, BITCNY, USDH, etc., that is to say, they are simulated USD and CNY.

Of course, there are also names that are not named after USD and CNY, such as DAI and Libra, but they are still in essence a simulation of USD, which is relatively easy to understand, so there is no need to say more.

Since these stablecoins are essentially simulations of fiat currencies, the problems that exist in fiat currencies also exist in them. For example, if the fiat currency has been overissued, then the fiat currency has been depreciating in the long run, and these stablecoins that simulate the fiat currency have also been depreciating in the long run; if the exchange rate of the fiat currency fluctuates slightly every day, then the The purchasing power of stablecoins has actually been fluctuating slightly.

4. Legal digital currency is the ultimate stable currency

Although there are many various stablecoins, none of them are considered the ultimate player. The ultimate player is the stablecoin of legal digital currency that will enter the market in the near future. For example, the stable currency of the US dollar digital currency and the stable currency of the RMB digital currency.

The national version of digital currency will definitely be issued. my country's central bank has started investigation and research a few years ago, and has launched a central bank bill system based on digital currency. The recent approval of the central bank's digital currency research and development by the State Council also proves this.

However, as I mentioned in my previous article "Specific Thoughts on Legal Digital Currency", the central bank's digital currency may be different from what everyone understands. It is more like a digital version of legal currency than what we understand A real digital currency.

For example, it may not have a public key-private password pair, UTXO data structure, POW mining, or even distributed accounting with a high probability. Its real added function may be programmability.

After the legal digital currencies of various countries have entered the market, the arena of digital currency stablecoins will be considered complete. At that time, the competition among the digital currencies of various countries will most likely continue the previous pattern of international currency competition. Because the currency is related to the comprehensive national strength, and the national strength will not change suddenly, the possibility of overtaking in a corner is relatively low.

5. Privately issued stablecoins will emerge in large numbers

Privately issued stablecoins will emerge in large numbers, and will remain fiercely competitive for a long time.

The current stablecoins are divided into the following three types: fiat currency custody model, digital asset mortgage model, and unsecured algorithmic stablecoins.

These three types are all issued by private institutions. According to Hayek's "Denationalization of Currency", they are all privately issued currencies. The technical difficulty of issuing stablecoins is not great, so every powerful institution will not let go of this piece of ecology. In addition to the major public chains having their own stablecoins, various exchanges and wallets are also trying to promote it. In the future, private stablecoins will still emerge in large numbers.

It will take some time for my country to issue legal digital currency. At present, it will take at least three years. The reason why it takes such a long time is that the technical difficulty is not the main reason. The main reason is that the policy and the coordination of the financial system need to be more carefully studied. Affect the status of RMB internationalization.

And these three years will be the golden opportunity for the development of private currencies. Hayek said in "The Denationalization of Currency" that private currency will eventually be a competing currency system, and the more advantageous currency will win.

Each of these stablecoins has its own characteristics. Some win by decentralization, some win by low volatility, and some win by first-mover advantage and network effects. Of course, each coin has its own problems more or less. with their respective competitive advantages.

The competition among various stablecoins will be very fierce, and it may be extremely difficult for a certain currency to maintain a long-term monopoly position. In the end, under the cruel screening of the market, the overall strength of the stablecoin will be improved, and the obvious shortcomings will be filled. The stable currency with the strongest comprehensive strength will win in the end.

Sixth, anchoring stable coins, the problem of centralization will exist for a long time

For fiat currency custody (anchor) stablecoins, the problem of centralization will exist for a long time.

Both USDT and LIbra fall into this category. Taking USDT as an example, the most criticized USDT is its centralization problem, as well as the non-openness, transparency and untrustworthiness brought about by centralization.

Is the problem of centralization really unacceptable? I don't think so. I think people don't care about centralization or decentralization. People care more about products and services.

As long as this model of stablecoin slightly improves security and transparency while maintaining this simple and direct method of operation, people will continue to choose it. According to what we said before, all stablecoins are simulations of fiat currencies, and fiat currencies are inherently centralized, so there is nothing wrong with the simulation of fiat currencies in a centralized manner.

As for USDT’s non-auditability and non-openness and transparency, if it remains unchanged for a long time and the market cannot accept it, then there will naturally be better stablecoins to compete with it and eventually replace it. Although these new stablecoins may also be centralized, they will be subject to public audits, third-party custody, and 100% deposit reserves. At present, many new stable coins can meet these requirements.

Although there are big problems in centralized stablecoins, I personally still think that centralized and fiat currency-custodial stablecoins will become the mainstream for a long time. These specific problems can basically be improved by relying on fierce competition in the market .

For digital asset-backed stablecoins, volatility and liquidation risks cannot be eradicated.

For mortgage-type stablecoins, such as Bitcny, its advantages are decentralization, openness, transparency, and credibility, but its disadvantage is that its volatility is high. When the price fluctuates sharply, it is easy to have a series of liquidation. It is related to its mortgage mechanism, and on the other hand, it is related to the volatility of its underlying mortgage assets.

The mortgage mechanism can be adjusted to reduce the liquidation rate as much as possible, but it cannot be eradicated, and the volatility of its underlying assets will always exist, which is the root cause of its risk, and this is difficult to eliminate. In the future, it may only rate to make some adjustments and improvements.

It is precisely because of this problem that I personally think that mortgage-type stablecoins can be a good supplement to stablecoins, but it is difficult to become the mainstream of the market.

8. The effect of algorithmic stablecoins remains to be seen

Algorithmic stablecoins mainly pursue unsecured issuance of stablecoins, which generally simulate the central bank’s open market operations. The general operation is: when the price of stablecoins is higher than $1, increase the supply; when the price of stablecoins is lower than $1 , recycling supply. At present, algorithmic stablecoins have a relatively low market share and relatively little influence.

Algorithmic stablecoins have some natural problems, that is, the scenarios in the real world are complex and changeable, and it is difficult to perfectly correspond to various scenarios in real life, which is far from being matched by a simple algorithm.

As Mr. Pan Chao said in ""Algorithmic Stable Coin" is a False Proposition":

Although the influence of algorithm-based stablecoins is very small at present, it does not rule out that there will be better algorithms that can solve the problem of stablecoins in the future. Coins, these are good attempts, and the specific effect remains to be seen.

9. The popularity of stable coins is not the end of BTC and BCH

After the stable currency became popular, I saw some articles, which roughly mean: BTC and BCH can never solve the problem of fluctuations, and payment must be stable; stable currency will take away the payment share of BTC and BCH; stable currency becomes popular Time is when BTC and BCH disappear.

These views cannot be said to be unreasonable, because in the field of payment, if the stable currency develops, it will indeed compete with BTC and BCH, which are also positioned as payment, but some people say that BTC and BCH are about to die. a little.

As I said before, all private stablecoins are simulations of fiat currencies, so they also have various problems with fiat currencies, such as KYC, capital control, tax management, and most fundamentally, they basically Neither can solve the problem of volatility, nor can it achieve complete stability.

Since it is also facing the problem of volatility, if the market value of BTC and BCH is larger, its volatility will be reduced accordingly.

As Lightning HSL said: "The so-called stability is developed, not designed." At the same time, there will be third-party digital currency service providers that can provide various services. At that time, the payment and stability of BTC and BCH In fact, there is not much difference in the payment of BTC and BCH, and the consensus of BTC and BCH is much stronger than that of private digital currency.

If you want to pursue stability as much as possible, then among all stablecoins, the most stable currency is the stablecoin of the country's legal digital currency. But once we return to the stable currency of legal digital currency, we will return to the original proposition.

Satoshi Nakamoto left a sentence on the Bitcoin creation block that year - "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks" (January 3, 2009, the Chancellor of the Exchequer was in the process of implementing the first brink of a second round of bank bailouts).

This sentence is the title of the front page article of The Times on January 3, 2009. The general meaning of the news is that the bank decided to open the floodgates to save the market. Later generations interpreted that the purpose of Satoshi Nakamoto’s doing this was Ridiculously, the unlimited oversupply of the current fiat currency system has led to various financial problems, and it also conveys three messages about Bitcoin:

Therefore, I think the future digital currency payment market may be divided into three parts: one part is the digital currency payment based on BTC and BCH, the other part is the legal digital currency of the country, and the other part is the private digital currency issued by private individuals. Mutual cooperation and mutual competition together constitute the entire market for digital currency payments in the future.

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Author: Monte Carlo, Contributing Author of Blockchain Research Institute.

Disclaimer: This article is the author's independent opinion, and does not represent the position of the Blockchain Research (Official Account) Society, nor does it constitute any investment opinion or suggestion.