With TrustToken releasing its Hong Kong dollar-backed stablecoin, TrueHKD, the cryptocurrency industry bears witness to yet another fiat-pegged digital asset.
TrustToken’s own stable now includes blockchain versions of the USD, CAD, AUD, and GBP. The HKD is now added to that list, as announced in April. Does yet another stablecoin bring anything new to the ecosystem?
The Utility of Stablecoins
The utility of fiat currencies is to provide governments a lever to manipulate their economies through increasing and decreasing money supply as deemed fit. The utility of cryptocurrencies is to remove the need to trust government altogether and transact seamlessly peer-to-peer, especially across borders.
Cryptocurrencies also hedge against inflation because cryptographic security is entrusted to give them their value.
What, then, is the utility of a stablecoin?
Many argue stablecoins provide an on-ramp from fiat to crypto. Those who have USD can use one of the various dollar-backed stablecoins to enter the crypto economy.
That argument is false insofar as it is no easier to buy a stablecoin, TrustToken or otherwise, than it is to buy an actual cryptocurrency.
Others point to their stable nature (stable against fiat, that is) to suggest they are a useful tool for traders seeking to take speculative profits from trading digital assets and store them in a currency with a steady store of value, without having to fiat-out of the exchange.
For traders, then, stablecoins offer a convenient place to park fiat gains, or find shelter when market volatility threatens gains. But it is unclear whether Circle, Gemini, Paxos, or TrustToken are creating them for that reason.
According to Forbes, TrustToken argues that:
“Cryptocurrencies provide decentralization of capital and stablecoins are one of the keys to bringing the benefits to everyday people through price stability.”
– Rafael Cosman, Co-founder and CTO of TrustToken
Encouraging Merchant Adoption
Stablecoins could help in the development of the crypto economy by encouraging merchants to accept digital assets in the knowledge a non-pegged crypto can be instantly turned into a pegged one.
But that removes the burden from cryptocurrency issuers from doing the hard work of encouraging merchant adoption themselves. Pundi X has shown it is possible – and highly promising – to do so. TrustToken is letting cryptocurrency foundations off the hook in that regard.
All you need is to develop and distribute the appropriate POS technology. Jack Dorsey’s Square has proven Visa and MasterCard don’t have a monopoly on developing POS systems.
Cryptocurrencies Backed by Faith in Fiat
Stablecoins are backed by fiat, which is backed by confidence in the fiat issuer – the Central or Reserve bank of a government – to responsibly manage the printing presses of the state.
As we’ve witnessed with Venezuela’s el Petro, if there is little faith in the government, there is little faith in its associated stablecoin.
If cryptocurrencies, then, are only as valuable as the faith their users have in their cryptographically programmed monetary policies and an underlying belief in their utility, fiat-pegged stablecoins place faith back in the hands of the issuing state: surely the lack of which being behind the idea of digital currencies in the first place?
TrustToken’s Business Model
If TrustToken backs its stablecoins by fiat reserves in bank accounts, what is its business model? In the low-interest environment in which we live, they can’t be relying on earning interest on fiat deposits to make a profit from creating digital equivalents of fiat currencies.
The Andreessen Horowitz-backed company also risks muddying a number of waters. Russia, Estonia, Sweden, and even the Chinese have considered the idea of cryptocurrency versions of their currencies, yet none have come to fruition, with only Venezuela forging ahead.
The Iranians have been toying with the idea of issuing a cryptocurrency equivalent of its Rial in order to evade sanctions. (It is not clear how doing business in e-Rial does not breach the same sanctions as doing business in fiat Rial.)
The problem with TrustToken creating stablecoins on behalf of governments is that it becomes a proxy state issuer of currency.
If we accept the premise that crypto arose from the ashes of a loss of faith in responsible governance, stablecoins are practically antithetical to the emergence of the technology and the movement.
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