For this to happen, there needs to be productive use cases. A productive use case is buying goods and services, or paying taxes, but not borrowing money to buy monkey JPEGs.
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With TerraUSD de-pegging, it’s a good time to mention that I don’t think a truly decentralized stablecoin is truly possible—yet. Came to this conclusion with Aurei a bit over halfway through its development. A thread 🧵:
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Dai seems remarkably stable, but that’s mostly because it’s largely backed by USDC. After Black Thursday, MakerDAO came to the conclusion that pure backing by decentralized assets is unsustainable. Without USDC, Dai would be struggling too.
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There are tons of crypto stablecoins and I’m sure there are plenty of people who will still how theirs is different. I haven’t come across a single one that exceeds my standard for low-risk, highly stable, and decentralized. This should be called “the crypto stablecoin trilemma.”
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Choose any 2 of the 3. Most crypto stablecoins are high risk. For some reason most people don’t acknowledge how risky they are.
On the PR front, it’s a similar problem to nuclear energy plants. The bad news will stay burned in the public’s mind for time to come.
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Happy to be wrong on this though. I would like to see a low-risk, decentralized stablecoin. However it seems that centralization plays a key role in risk management and stability. I’m not an expert in fixed exchange rate systems, but there are plenty of good examples—HKD, AED, ..
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I think that TerraUSD’s design took some inspiration from such systems. But ultimately even TerraUSD has a strong centralization vector due to the control and power that one individual exercises over policy.
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Dai still is the best example of what a proper implementation looks like. Still requires USDC. Yet still a lot of risk. The risk will go down to acceptable levels, however, if the underlying assets (Bitcoin, Ethereum, etc…) become less volatile over time.
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If we want to solve the stablecoin trilemma, we need to focus on making BTC, ETH, etc. less volatile first.
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@mattrosendin
Volatility won’t go down until the market cap goes way up from here. Just looking at the bitcoin log chart you can see it’s already less volatile than it used to be. The more people that use it the less volatile it gets. But we have a ways to go.
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