Governor Waller: Stablecoins Help To Strengthen US Dollar

Governor Christopher J. Waller is one of the people at the Fed to listen to when it comes to cryptocurrency. He appears to be rather levelheaded and understand what is taking place. There was also his speech where he basically called CBDCs a solution looking for a problem.

Now he has opined about stabledcoins and the relationship with the US dollar. It caught my attention because he is echoing the sentiment I expressed in a number of articles.

Waller noticed the obvious: most of the stablecoin market is tied to the dollar. If this is the case, and it is rapidly growing, then it only serves to enhance the reach of that currency.

It is also important to note, in his speech, he specifically mentioned how he used the term "dollar" to also apply to USD denominated assets such as US Treasuries. This is crucial since that is what Tether and USDC use to back their tokens.

If DeFi is going to grow, it becomes rather obvious where this is going.

https://inleo.io/threads/view/taskmaster4450le/re-leothreads-27xqedsyk

The US Dollar Will Be Strengthened By Stablecoins

This is something contrary to what we hear in the cryptocurrency world. How can any of this be true if, according to what we hear, bitcoin is going to replace the USD?

It isn't.

Yet, we see headlines such as this from the Wall Street Journal:

Scary stuff until you realize the date of the article. This is almost 13 years old and still no movement in that direction. If anything, as Waller alluded to, we are likely to see a massive explosion in the utility of the US dollar due to stablecoins.

This is a very simple concept.

Stablecoins provide a digital version of the US dollar. This might seem obvious but it is crucial. Most countries do not have access to this. There are can be markets where banknotes are available yet this is turning people back to the monetary stone age.

A digital wallet can reside on a phone. If the currency is flowing in and out, much like a bank account, it allows for transactions without using cash.

The key here is that anyone with a smartphone is able to do this. Suddenly we are dealing with a market of billions of people.

Another major factor is stability. Any currency that has greater volatility than the USD, which is almost all of them, is going to see the value extracts by the dollar. This is going to be catastrophic for the local currencies since utility is going to move elsewhere.

Hive Backed Dollar (HBD)

Once we accept this, the discussion turns in a different direction.

If stablecoins are going to make up a large portion of transactions around the world, which one will it be? This is, naturally, hard to predict, yet we can focus upon one factor that is going to be used.

Transaction fees.

Stablecoins that carry high transaction fees are going to suffer a great deal. Those with low-to-no transaction fee will find a larger audience.

We have to keep in mind the present financial state of much of the world. Once we leave the developed countries, we find billions of people who deal with much smaller numbers. To them, a $20 transaction fee is an enormous expense.

Unfortunately, this is common on some chains. Heck, even a dollar or two is going to have an impact upon the appeal.

To me, the Hive Backed Dollar (HBD) can stand out due to the fact there are no direct transaction fees, either on the purchaser or vendor. This not only eliminates the cost of the transaction but also the percentage that a company such as Visa takes.

This is an incredible selling point.

Remember, at this point, Visa's domination comes from their network. In this way, the resemble a computer networking company more than a financial institution.

Of course, blockchain also provides this. As long as it does it without the fees, this can help to bolster the utility.

Solving The Problem

If we are to remake the existing financial system through technology, we need to understand how it operates.

Stablecoins will be the medium of exchange in the future. For that reason, it is best to stop wasting time discussing how value capture tokens will replace the US dollar. It isn't going to happen.

At the same time, this idea the dollar is suddenly going to crash is a long held myth. We are to the point where the USD is a unit of measure, similar to an ounce or kilometer. Look at algorithmic backed stablecoins and tell me where the dollars are in that situation.

They do not exist since it is nothing more than a measurement.

Once we have that out of the way, then the focus becomes the appeal of the different stablecoins. For my money, concentrating on the fees tied with each network is paramount. Unless they are contained, the stablecoin will find resistance in adoption. Simply put, much of the world cannot afford it.

Governor Waller is, once again, on the money with his analysis. Too bad he is not the Chair. Alas, at least there is one voice in the Fed meetings who has a grasp of how things are unfolding.

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What Is Hive

Posted Using InLeo Alpha