Cryptodollar: A Trojan Horse for the Crypto World?
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Blue Fox Notes (ID: lanhubiji)
Blue Fox Notes (ID: lanhubiji)
, reprinted by Odaily with authorization.
In recent months, the market value of stablecoins has grown faster and faster. The overall market value of encrypted dollars (mostly centralized stablecoins) has exceeded 9 billion U.S. dollars, and an increase of 3 billion U.S. dollars has been added in just over a month.
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Ironically, the fastest growing crypto space today is not DeFi, not Bitcoin, but crypto dollars. At present, the biggest application scenario of Ethereum is not ICO in 2017, nor DeFi in 2019, but the issuance of USD stablecoins. If this continues, at least in the short term, Ethereum will become the largest encrypted dollar public chain, rather than an open financial public chain.
Whether people in the crypto world like it or not, the crypto space is not the crypto world it was originally expected to be. In the long run, maybe the encryption field will develop a new look, but in the short term, the most suitable scenario for the current products and markets in the encryption field is the encrypted dollar, that is, the dollar is on the chain and the dollar is tokenized.
The original goal of Bitcoin was to replace the legal currency system, but the current evolution is that the legal currency has not weakened, but it has a stronger growth trend. Of course, not all fiat currencies are so lucky. In the context of the blockchain, the stronger is stronger, such as the legal currency of a strong national economy such as the U.S. dollar. The currencies of weak countries, such as those of Venezuela and Argentina, will become weaker and weaker until they are completely replaced. In some application scenarios, what the decentralized technology of blockchain brings is not the reality of decentralization, but tends to be more centralized. The crypto dollar is the biggest microcosm of it.
As the U.S. dollar enters the encrypted world and rapidly expands the influence of fiat currencies, is it a Trojan horse in the encrypted world that will eventually swallow the encrypted world in turn?secondary title》）
The initial narrative of Bitcoin was to become a peer-to-peer electronic cash and an encrypted payment that replaced the fiat currency system. However, due to the scalability of Bitcoin itself, it cannot support the reality of peer-to-peer payments. Even so, Bitcoin has become a part of the global monetary system, and its current market value exceeds US$130 billion (Blue Fox Notes: As of writing on April 24, 2020). However, this magnitude is not at the same magnitude as compared with the global capital market, such as the stock market, real estate market, and derivatives market. Even gold has a market cap of nearly $8 trillion.
However, due to the immutable characteristics of Bitcoin's currency issuance and its advantages in value storage and value circulation, it has great potential to become the best substitute for gold in the future digital age. (You can refer to the article "
What is it that supports the value of Bitcoin?
Now, in the process of Bitcoin's development, its value storage and value circulation are facing strong competition from encrypted dollars. This is also the problem that Bitcoin needs to solve next, how to expand its usage scenarios, and how to find a way to ensure its competitiveness in the future.
secondary title
The encrypted dollar has the value foundation of the traditional dollar
Although Bitcoin is a well-deserved big brother in the encryption world, compared with the US dollar in the real world, the scale of its demand is obviously incomparable. The encrypted dollar itself is the tokenization of the US dollar, and its foundation lies in the own demand for the traditional US dollar. The demand for the crypto peso (the tokenization of the Argentine peso) would not be so strong.
International Trade Demand
The U.S. dollar is one of the main currencies in world trade, such as using the U.S. dollar for oil transactions.
USD debt demand
investment needs
Investing in U.S. companies, such as U.S. technology companies, requires U.S. dollars. Investing in U.S. Treasuries also requires dollars.
Due to the above reasons, there is a strong global demand for US dollars. Of course, the strength of the U.S. dollar will also make it hard for the currencies of weaker economies. On the one hand, the demand for U.S. dollars leads to deflation; on the other hand, the inflation of local currencies leads to the continuous compression of its usage scenarios.
Due to the strength of the U.S. dollar, this has also led to the U.S. dollar being regulated in many places around the world. If it is not controlled, it may cause the local legal currency system in many places to be unsustainable. However, because of the control, its circulation is not completely smooth. There's a lot of pent-up demand out there. Once the pent-up demand finds a channel for release, it will quickly show explosive power.secondary title》）。
Cryptodollars have advantages in the crypto world
The reason why the encrypted dollar is popular is that it has both the demand base of the US dollar in the real world and the fast circulation characteristics of the encrypted world. Through encryption technology, the issuance of encrypted dollars is relatively easy and can be circulated at a low cost. Tokenize the U.S. dollar to generate various stable coins, such as USDT, USDC, BUSD, etc. These stablecoins can be quickly transferred through various public chains, especially Ethereum. It is now easier to have an encrypted wallet to send and receive payments than to set up a traditional bank account (such as through encrypted banks such as Dharma), or users only need to have an Ethereum or Bitcoin address, which is equivalent to having a permissionless bank account.
In addition, the trading network of encrypted dollars is relatively complete, not only has the technical basis for rapid circulation, but also has the social basis for rapid circulation. In addition to buying encrypted assets, encrypted dollars can also be used for lending, remittance, derivatives, etc. From the current point of view, the income of encrypted dollars is higher than that of traditional banks, which makes it possible to absorb traditional banking business. Some crypto banks are trying to suck dollars from the real world into the crypto world with simple models. (For example, the Dharma "
All in all, the encrypted dollar is an unprecedented species. It is the product of the combination of traditional US dollars and encryption technology. It has the attributes of value storage and pricing units in the real world, and also has the attributes of value circulation in the encrypted world. This gives it the full attributes of money. From this perspective, it competes with Bitcoin in the dimensions of the traditional and encrypted worlds. However, crypto dollars also have weaknesses. It is that it requires the traditional banking system to achieve a 1:1 dollar anchor, which makes it less resistant to censorship.
Cryptodollars have developed other models as well. For example, decentralized stablecoins such as DAI generated by overcollateralization. Stablecoins like DAI are mainly used in dApps in DeFi, and they are also in line with the temperament of DeFi. There is also exposure to the U.S. dollar that can be gained through derivatives backing. For example, dollar exposure can be achieved using the crypto world’s permissionless tokens bitcoin or ethereum, a more complex form of crypto-dollar.
For example, through the Bitcoin perpetual contract, which supports users to trade BTC/USD, then if the user wants to obtain the stability of the encrypted dollar and does not want to bear the volatility risk of Bitcoin, he can obtain similar futures mortgage BTC The stability of the crypto dollar. Suppose a user in Venezuela buys 1 BTC with their fiat currency or cryptocurrency. The user’s goal is to hold an exposure of $8000 (assuming the price of 1 BTC is $8000) to resist local inflation. However, the user does not want to bear the market risk of bitcoin fluctuations. The user just wants to hold an exposure of $8,000, and does not want to exchange it for other stable coins (USDT).
At this time, users do not need to sell 1 BTC to get $8,000 (regulatory risk). Users only need to short BTC through the perpetual contract. If BTC falls below $8,000, the short position is still worth $8,000 because the user has earned BTC; if BTC rises above $8,000, the position is still worth $8,000 because the user has lost BTC. That is to say, by staking BTC for synthetic USD exposure, users can lock in their USD exposure regardless of the volatility of the BTC market.
secondary title
Will the Crypto Dollar be the Trojan Horse of the Crypto World?
The crypto dollar is going strong right now. Encrypted dollars can be used to earn higher interest in the encrypted world, and the income of stable coins is much higher than the US dollar income of the traditional banking system. Stablecoins can be used as a hedge against volatility in the crypto market. Stablecoins can also be used for lending, mortgages, etc. OTC also supports fiat currency and USDT transactions.
Cryptodollars can be used for remittances, enabling transfers of value. Remittances are a more than $600 billion market where intermediaries can capture tens of billions of dollars in fees. Due to its low cost and speed, crypto dollars have the opportunity to capture a large portion of the traditional remittance market.
The encrypted dollar can be used to fight inflation in weak economies, such as Venezuela, Argentina and other countries, where ordinary people have strict USD withdrawal and purchase controls. Cryptodollars can help ordinary people in these economies have access to alternative currencies to fight inflation when inflation in their local currencies is high.
The most important thing is that the demand for U.S. dollar debt is very strong and the scale is huge. So, will crypto dollars be used to obtain more U.S. dollar liquidity? This possibility is not impossible.
So, wouldn't this damage the monetary properties of Bitcoin and Ethereum? Will these cryptocurrencies be marginalized?
no.
The vision of the crypto world is to build an open financial system to prevent the continuation of the economic crisis of 2008. It tries to change the inflation model of the credit economic system and realize a real hard currency system, and it tries to transfer the traditional financial system to the blockchain.
Bitcoin and Ethereum are two representatives of the encryption world. From the current point of view, the mainstream people have no willingness to give up legal currency, nor do they regard cryptocurrency as an alternative currency. At present, the demand for speculation and investment is more. On the contrary, with the help of blockchain technology, strong legal currencies (such as the US dollar) have gained more room for growth. All of this, it seems that the encrypted world has allowed the rise of traditional fiat currencies instead of making cryptocurrencies an alternative currency.
So, is the crypto dollar really a Trojan horse for the crypto world?
no.
First of all, it must be admitted that the rise of the encrypted dollar has squeezed the narrative space of Bitcoin in value storage and value circulation to a certain extent. Due to its scalability, Bitcoin cannot take on the heavy responsibility of peer-to-peer electronic cash, nor can it convince current users as a store of value due to its volatility. Of course, for now, it is even more unable to take on the heavy responsibility of the unit of account.
It can be said that before Bitcoin fully demonstrates its advantages, the existence of encrypted dollars will largely squeeze Bitcoin's value store narrative. Therefore, in the event of a crisis and market volatility, people may prefer to hold encrypted dollars instead of Bitcoin.
However, that doesn’t mean the rise of the crypto dollar is a real blow to Bitcoin and Ethereum. On the contrary, the rise of the encrypted dollar is beneficial to Bitcoin and Ethereum in the long run.
First of all, the rise of the encrypted dollar squeezes the traditional banking system. It is the "Eurodollar" of the new era, it will provide the world with new liquidity channels, and it will provide a better alternative for world remittances. The rise of the encrypted dollar will reshape the business models of traditional banks such as dollar credit, storage, lending, and remittance.
Second, the rise of the encrypted dollar squeezes the currencies of weaker economies. In weak economies like Argentina and Venezuela, where high deflation makes their currencies unattractive, people try to get dollars to fight inflation. But the real dollar is difficult to obtain, and the encrypted dollar has accelerated this transfer, which will further compress the space for inflationary currencies.
The encrypted dollar only released the pent-up demand for the dollar, and encryption technology accelerated the process of releasing this demand.
Compared with the currencies of weaker countries, Ethereum and Bitcoin have unsurpassable moats. Because Bitcoin is fundamentally different, it is a programmable currency, it is transparent, has a clear issuance plan, does not require permission, and circulates freely. It is an encrypted native currency born based on a global consensus, and its books cannot be tampered with. . It will not be like the U.S. dollar, which can be issued relatively casually. In essence, it is a completely different species from the dollar. Even if the encrypted dollar develops fast, it is an extension of the US dollar, and Bitcoin is a parallel species in the encrypted world. Ultimately, it has its own usage scenarios, especially when it solves the privacy problem. It has legal currency and encryption. USD irreplaceable demand scenario.
