Stablecoins In An Unstable System
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Stablecoins In An Unstable System
By Christian Lawrence, head of cross-asset strategy at Rabobank
Summary
The post-WW2 and Cold War global architecture is crumbling; systemic geopolitical and geoeconomic instability is rising; so are risks of geo-financial instability as fiscal deficits grow, public debt rises, and hopes for rate cuts meet sticky inflation.
Against this backdrop, stablecoins may play a pivotal role – though ironically they are likely to create further instability before cementing an alternative.
This report will explain what stablecoins are; why people may want to use them; why the US government certainly wants us to use them; and the hypothetical geopolitical and market implications of their roll out.
What are stablecoins?
Stablecoins have risen from a niche crypto product to front of mind for the US government, geopolitical analysts, economists, and market participants alike. What was initially viewed as an easier way to handle crypto risk on the blockchain is now seen as a potentially crucial variable in US debt management, USD reserve currency status, and global payment and trading systems.
Stablecoins are digital assets designed to replicate fiat currencies (Fiat money is government-issued monetary not backed by a physical asset), but we can break them down into the following subsets: commodity-collateralized, algorithmic, crypto-collateralised, and fiat-collateralised. The first three are still niche markets, while the latter is our main focus given it accounts for the overwhelming market share today and, more so, going forward.
Fiat-collateralised stable