Stablecoins are often promoted as a stopgap, or as a friendly tool for people in the developing world who cannot handle Bitcoin’s volatility. They are framed as something complementary to Bitcoin, not a competitor to it. Nothing could be further from the truth.
Bitcoiners have often used the Trojan Horse meme over the years to justify many things, rationalizing many flaws and compromises made over time as what it takes to sneak Bitcoin into the old system to eventually take power and win. That’s exactly what stablecoins are, except in the opposite direction.
Stablecoins are Bitcoin’s Trojan horse.
Bitcoin’s volatility makes using it a challenge if you don’t have the net worth to see it through, but there are mechanisms to deal with this. Centralized systems like Blink’s Stablesats are built to use bitcoin collateral to lock in a dollar value without actually having to hold dollars. Discrete Log Contracts (DLCs) provide another mechanism to achieve the same thing in a decentralized manner.
Instead, we support the US dollar. Stablecoins are a solution to volatility, but they don’t come from Bitcoin. They are the US Treasury Department’s Trojan Horse in the Bitcoin space. They do more to control and support the dollar than to “help” Bitcoiners address the issue of volatility, which can be done while just holding Bitcoin.
Stablecoins give the Treasury a new lifeline to sell government bonds. Foreign countries have been cutting demand and selling existing government bonds for several years, and stablecoin issuers have stepped in to catch up. The greater the demand for stablecoins grows, the greater the decline in demand from foreign governments for government bonds that the US government can handle. At a time when the BRICS are increasingly looking to move away from their dependence on the US dollar, stablecoins provide a means to ameliorate this problem.
They also pose a security risk to holders, unlike native Bitcoin solutions such as DLCs. As far as I know, all network stablecoins, aside from the Liquid Network, are issued with a seizure and freeze functionality built into the smart contract the issuer uses to create them. Almost all stablecoins support arbitrary freezing and confiscation of user funds on the various networks on which they circulate.
Surveillance is another aspect of stablecoin proliferation. The more dollar stablecoins are adopted around the world, without having to politically convince any government to officially dollarize, the more the US government’s ability to directly monitor foreign financial activity increases. Chainalysis and other companies become a de facto government surveillance system for foreign financial activities, without the need to first serve a subpoena or collect data. It’s all on the blockchain.
Meanwhile, it promotes the idea that ‘blockchain’ is a useful technology separate from Bitcoin, instilling in the average person the idea that Bitcoin is simply an asset like gold to invest in. It creates a psychological narrative of ‘invest in Bitcoin, use your surveillance money when you need to spend it.
Overall, stablecoins will be one of the most epic unforced errors to happen in this entire ecosystem. People need to wake up before it becomes so deeply entrenched in their lives, and in the financial world in general, that it becomes difficult to break away from it.
People should spread out and build on Bitcoin, a money built to enable freedom and sovereignty, and not these cheap imitations called stablecoins that are nothing more than an extension of the surveillance and tyranny of the old financial system.
This article is a To take. The opinions expressed are solely those of the author and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.