Stablecoins Are The Boogie Man Of Government, Here’s Why

Bitcoin (BTC) holds no fear for the world’s government. It is not anonymous, it is very traceable, it gets seized all the time and hardly any bad guys use it for nefarious purposes.

Bitcoin has no government quaking in its boots. What does have them scared are stablecoins like USD Coin (USDC) and Tether (USDT). Bitcoin will not, as far as they care, create any systemic threats to the world economy, those threats come from stablecoins and you might say from the programmable chains like Ethereum that support them.

There is no future for private sector money as far as the financial regulators of the world are concerned. They won’t say that but if you ask them, “Is there is a future for private sector money” they simply will not answer. I know, I have asked them.

If you think about it, you can see why a stablecoin can be the worst nightmare for the regulators of a country’s economy. A stablecoin is an unwarranted parallel currency that is issued for the benefit of an entity that gets the value of the seigniorage, and that entity isn’t the government. You might say making stablecoins is a license to print money without a license to print money and the potential for trouble is impossible to predict. If you print your own $20 bill you are in big trouble, so why should printing stablecoins be any different?

However it is worse. A stablecoin can be programmable money; money that can do more than just be a means of exchange. You can simply dream up facilities for programmable money and before you know it you have money that is more useful and powerful than the day-to-day currencies we use right now. For example, it might deposit itself automatically to earn interest or some such other DeFi thing. Once you can program money all sorts of risk horizons open up. Programmable money is clearly another level when it comes to what the future might bring to finance, taxation and economics, and governments simply can’t issue programmable money, not ever.

Stablecoins represent the next iteration of money and governments can’t go there.

Why, you ask?

Governments can never issue money that might do something they couldn’t control. They cannot and can never risk the sort of issues of unintended consequences that crypto faces every day. They cannot risk bad luck or incompetence or being robbed, hacked or hijacked if they produced real programmable money, but of course the private sector can and will and will fall over itself to do so, if allowed.

When people talk about central bank digital money they need to realize money is already digital. It is digital centralized money and it works really well and its economic plumbing is understood. Stablecoins represent a risk to the whole stack and while this was not acutely clear to regulators, they are not going to let it blow up in their face.

So expect stablecoins to be the focus of regulation and expect stablecoins to have a rough ride as various parts of the world try to keep them out of their financial systems.

Yet which countries will prosper and which will fail in the new crypto economy will be settled by who can or will embrace stablecoins. Programmable private sector money is a powerful thing and like all technical innovations, it cannot be uninvented. While many jurisdictions will try to regulate stablecoins into oblivion, others will not, and the ones that find a way to embrace them will benefit enormously. While programmable money will not be the future of centralized currency, it will be a big part of the future of money and its enabling power will, like any other technology, be an economic multiplier.