The Tether Killer? An Innovative Stablecoin Could Revolutionize Banking and Cryptocurrency
On Tuesday, S&P, a leading ratings agency, released a comprehensive analysis of eight prominent stablecoins, revealing significant shortcomings in many of them.
However, a potential solution lies in the development of a pegged stablecoin tied to the U.S. dollar. This stablecoin wouldn’t just increase the money supply; it would actually enhance the entire money supply, positively impacting U.S. economic growth by bifurcating our monetary system.
One component of this system would comprise the pegged stablecoin, facilitating faster and cheaper transactions. The other part would consist of U.S. dollars held in bank accounts, thereby reducing the cost of borrowing USD.
But it’s crucial to note that not all stablecoins would deliver these economic advantages. Stablecoins that offer “yield,” “earnings,” or “dividends” are likely classified as securities, entailing capital gains tax on every transaction involving such coins.
Even if structured similarly to Tether, a stablecoin that S&P critiqued, without promising yield to holders, there would likely be minimal benefit to the U.S. money supply and economy if the stablecoin’s asset portfolio extended beyond strictly U.S. dollars held in a bank account.
The main drawback of stablecoins like Tether is the potential for a catastrophic “run on the bank.” A stablecoin that invests in anything other than U.S. dollars in a bank account cannot guarantee holders that they can redeem their stablecoin at any time and receive the full face value.
In contrast, a true stablecoin could be sold and redeemed for exactly $1, remaining impervious to market fluctuations and lacking yield or appreciative value. Consequently, there would be no incentive to “hodl” such a stablecoin.
Nevertheless, stablecoins are anticipated to offer faster, more convenient transactions compared to fiat currencies. This heightened functionality would drive demand, enabling the issuer to profit by retaining the yield generated from custodian banks for the U.S. dollar deposits.
At the same time, a genuine stablecoin would not compete for the same goods and services as fiat currency since its purpose would be solely for transactions. The long-term stable dollar deposits backing the stablecoin would allow banks to offer loans at reduced rates.
Hence, a legitimate pegged stablecoin would (1) expand the money supply without provoking inflation and (2) decrease the cost of borrowing fiat currency.
This kind of stablecoin addresses none of the concerns associated with central bank digital currencies (CBDCs). It seamlessly fits within existing regulatory frameworks, doesn’t jeopardize the banking system, and safeguards against government exploitation of currency as a tool for surveillance and control.