Cryptocurrency has created many problems. Poor user experience, unsustainable transaction fees, and the inability to assess risk in the face of major innovations. But until now, no one has suggested that interdependence with the dollar is one of the problems.
The advent of stable coins, which are easy to trade and linked to dollars, was a godsend for millions of ordinary people. It can counter the constant price fluctuations of Bitcoin (BTC) and Ethereum (ETH).
And stable prices mean that there is no longer any obvious reason to prevent the world from incorporating stable coins into its digital economic activity.
But still, America is in dire straits. The major economic backlash that has slowed the economy for several months has not yet reached its peak. Debt has been commercialized on a large scale. There is a huge division of wealth between generations, races, and cities.
Cultural and political divisions are similarly deep-rooted. The polarization of the American people is increasing, and even wearing masks is becoming partisan. And the country is led by a government that is trying to stir up further divisions and support only one.
American politics is broken, and it is not unthinkable that a full-scale civil war will break out. In fact, journalists and senior military officials are frightened but openly consider the possibility.
If the United States is in a state of extreme instability between further prosperity and the potential for catastrophe, so is the fate of the dollar for the rest of the world. Looking at the issue of government bond issuance alone, professional asset managers warn that the dollar’s position as a key currency is threatened.
Traditional markets have mature financial products to risk hedge or evacuate such structural shifts. There are many other currencies and non-dollar-denominated assets that can be moved in the event of a severe collapse of the dollar.
Cryptocurrency assets do not have similar products that economists and traders calmly describe as “financial instruments for hedging external political risks.” Despite the global goal of crypto assets and freedom from state control, its fate is still surprisingly tied to the dollar.
The crypto asset ecosystem leverages the dollar for almost every user experience. Of course, some people live on Bitcoin and Ethereum.
But if you check Ethereum’s transaction fees on any exchange or in your wallet, you’ll see that crypto assets are being developed and used by people living in the dollar world.
The most obvious route to get out of that interdependence is to introduce euro, yen, or yuan-backed stable coins. However, while there are more than 6 types of dollar-linked stable coins whose daily trading volume usually exceeds $5 million, non-dollar-linked stable coins that can compete at the same level.
Dollar hegemony on stable coins
Why are non-dollar-linked stable coins still unsuccessful?
There is the best person to answer this question. Mariano Conti, a former member of MakerDAO, who developed the dollar-linked autonomous stable coin Dai (DAI).
Initially, Die was planned to be linked to the IMF’s Special Drawing Rights (SDR), Conti said. The SDR is a basket of five currencies: dollar, yuan, euro, pound sterling, and yen, used as a unit of account among IMF member countries. The IMF sets the SDR by carefully considering the five currencies.
But in a nutshell, “People think in dollars rather than SDRs, so the dollar was ultimately chosen,” Conti said.
Possibility of Euro and Yen linked stable coins
Is it possible to change this? Can the die be changed to be backed by euros or yen?
“The protocol can be modified to work with other currencies if needed, but the process can be tedious,” Conti said.
A better idea is to issue another currency backed by the DAI, such as EuroDai or YenDai. That means supporting new stable coins with existing collateral and building on success, Conti explains.
“Once we get on track, we can gradually move our collateralized dies to an existing or new basket of currencies.”
In other words, stable coins backed by euros and yen are feasible but time-consuming. It will take months to build, but probably more than a year to really earn the trust of the community.
It will probably take even longer to integrate into the user experience of hundreds of distributed apps (Dapps).