Could a Genuine Stablecoin Outperform Tether in Banking and Crypto?

• An Analysis of Leading Stablecoins by S&P
• The Role of Stablecoins in the Economy
• The Downside of Stablecoins Like Tether
• The Potential of True Stablecoins
• Effects on the Economy and Banking System

An Analysis of Leading Stablecoins by S&P

The Role of Stablecoins in the Economy

The first part of the money supply, the pegged stablecoin, could be used for faster and cheaper transactions. The second part, the U.S. dollars kept in bank accounts, could be leveraged to reduce the cost of borrowing USD. The economic gains, however, would only come from a specific type of stablecoin. Any coin promising any kind of yield, earnings or dividends is likely a security, and transactions with it could lead to capital gains tax implications.

The Downside of Stablecoins Like Tether

The Potential of True Stablecoins

A true stablecoin can be sold and redeemed for exactly $1 and is assumed to never change in value. It does not offer yield or appreciate in value, eliminating the need for holders to hodl such a stablecoin. It is believed that stablecoins are faster and easier to transact with and have greater transactional value than fiat currency - a superior functionality that could drive demand. Consequently, a stablecoin issuer could profitably operate the stablecoin by retaining the fiat currency yield paid by the custodian bank for the U.S. dollar deposits.

Effects on the Economy and Banking System

Simultaneously, a true stablecoin would not compete with fiat currency for the same goods and services as it would serve primarily as high-velocity money for transactions. The dollar deposits backing the stablecoin would provide stable, long-term deposits that allow the bank to lend at lower rates. As a result, a true US dollar-pegged stablecoin could (1) increase the money supply without causing inflation and (2) reduce the cost of borrowing fiat currency. This type of stablecoin, unlike a central bank digital currency (CBDC), presents none of the challenges associated with current law, isn't detrimental to the banking system, and prevents the government from using currency for surveillance and control.

Edited by Jonathan Stoker