Fiat-Backed stablecoins are a very different animal to CBDCs, says Bowen Zhou, the founder CEO of Moneta Digital.
Speaking from my own perspective, I would like to touch on a few topics commonly discussed by some of my great friends and players in the financial space.
Let’s start by getting rid of the big fat elephant in the room. What a ride it has been for Terra LUNA, UST and the ever-debatable algorithm stablecoins.
Do Kwon has certainly tested the water with its algorithmic stablecoins. This stuff works in a hot market where everyone is buying the speculative idea, like any other big concept in a bullish market or even an uptrend market, TVL, high APY, Yada yada yada. However, what we saw last week was devastating but 100% expected.
It is like any Ponzi-hyped project doomed to burst the bubble. The value of UST first cliff-dived 60% in value to a low near $0.40. In the following days it became useless as its value became pennies to the dollar. It was delisted from most exchanges that once supported it.
Also, the bleeding didn’t stop there; Luna lost 99.99% of its value, almost $0.00013.
Depegging
The main reason is that the price of its governance token, LUNA, has plummeted due to a significant market sell-off. UST has been unable to maintain its peg to the LUNA algorithm stability. If the Terra Foundation or VCs do not bail out Terra’s ecosystem, this will be one of the biggest fiascoes in the history of cryptocurrencies.
Obviously, I believe this was a beautifully planned, textbook-grade short strategy, and whoever you are, your witty patience has amply paid off.
And then, to rub salt into the wound, Yellen came out and emphasized her point that stablecoins need to be regulated. And some biggie even argued that CBDCs will become the stablecoins of crypto. SAY WHAT?
Fiat-backed stablecoins against CBDCs
Let me ask the audience a simple question, why are we here in crypto? Is crypto the same as securities and stocks? Ladies and gentlemen, CBDC is a completely different animal from stablecoins.
Just to bore you to death with knowledge, Stablecoins are decentralized private virtual digital assets (VDA) issued on the blockchain that is pegged to a certain fiat currency. Users opt to use this type of borderless VDA because of its transparency, privacy, and fast transaction times.
This is opposed to the CBDC, which is a centralized, digitized national fiat that is regulated but completely controlled by a single government or country.
The China example
Take China, for example. The main idea of their version of CBDC is to rid the government’s burden of paper money logistics yet to have a better grasp on its citizen’s monetary activities.
Again, for my great friends, CBDCs will not become the stablecoins of our time. It will simply be a digitized fiat partially using the IF ANY blockchain feature.
Simply put, CBDCs are issued from the perspective of a single centralized government that might not be on blockchain and bordered.
On the other hand, stablecoins are minted and transacted on borderless blockchains, issued from the perspective of users. That’s the main difference, PEOPLE!
Fiat-backed Stablecoins: Regulations
Now, let’s talk about regulations, to be or not to be that is the question. Actually, in my opinion, the answer is not simply black or white. Just like crypto, just like a lot of things. There isn’t a right or wrong answer.
I think all assets, including digital assets, should be regulated. The question is not whether or not it should be regulated. But who to regulate and what involvement does the authority give to borderless digital assets. And who is this authority figure?
Crypto will always be decentralized and that is its main idea of it. I believe regulations should be placed more on the safety of users’ assets and not to regulate or limit the issuers.
Finally, the fact is that the only stablecoin that can be called a stablecoin should be and only stablecoins that are backed by assets pegged to a stable value, just like MMXN.
Most importantly, asset-backed stablecoins need to be issued for the users with the perspective of helping them improve their daily lives. It should not be a digital coin that FOMOs the market in a “creative” Ponzi-like scheme, just so the few can profit from holding on to a sizable market share.
Remember that blockchain is made by people for people; it will only survive if we stay true to this motto. Be bold, be people without borders!
