In a world where we order 'two pounds of chicken, please' or hear Eminem claim '8 miles' as his location, have you ever pondered the origins of these measurement units? But have you ever thought about what a pound, kilo, meter, mile, or any of these measurement units really are? And where did they come from?
We don't have a clear answer to this question, but I certainly believe that the USD will eventually become just a measurement unit, and nothing more. For those who haven't taken money lessons in college, let me explain what money is: it's a tool that carries value. Money is not meant to be an investment tool. We use money because we need a simpler system for calculating the values we want to exchange. Money comes in handy when you want to trade your 10 chickens for a goat, but the goat is valued at 15 chickens. Would you go and exchange your wheat for chickens first and then bring 15 chickens? It's too complicated without an intermediary payment system.
Looking at the markets now, I'm having a hard time drawing meaningful conclusions from the current events. Big companies are laying off employees, retailers are struggling due to inflation, yet stock prices, real estate, and crypto values continue to rise.
If these stocks, housing market, Bitcoin, and other assets aren't meant to be used and invested by regular people, then who will use them? What is their value if they're concentrated in the hands of a limited number of individuals worldwide? By mid-August, we witnessed another sell-off triggered by the decrease in SpaceX's Bitcoin assets and the emergence of financial problems at China's Evergreen. I believe there's a clear paradigm shift in the markets concerning money supply.
Printing money is a symbol of sovereignty. Monetary sovereignty has historically been associated with the divine rights of kings. When a new king ascends the throne, one of the first acts is issuing new currency to assert their sovereignty. In our times, the Federal Reserve (FED) holds monetary sovereignty over the US Dollar and is the sole authorized institution to control its supply.
It's been over a year since the Luna Crash, which deeply impacted crypto markets and led to the downfall of several companies. I think the Luna case is more significant than we might realize; it wasn't just a simple crypto project failure. From my perspective, Luna was attempting to challenge the FED's role and was met with resistance. Luna marked the initial round of a battle between defenders of USD sovereignty and proponents of a new monetary system.
Creating a stablecoin without backing it with actual US Dollars in a regulated bank is a much broader topic. When you design an algorithmic stablecoin, you essentially generate new currency for the system without FED authorization.
For instance, if I have $100k in US bonds and need cash, I can use these bonds as collateral to secure a bank loan. However, I'll have to pay interest and premiums on top of the loan amount due to the limited availability of money. But when I lock up Bitcoin in a smart contract and mint new stablecoins with zero interest, it's akin to printing money.
At the start of 2023, Binance announced that Paxos would cease minting BUSD stablecoins. It's no secret that the US government is scrutinizing Binance, especially after CZ's involvement in the FTX crash. This is noteworthy because Binance was encroaching on the FED's territory by creating money supply. We aren't even completely certain if Binance was using customers' digital assets to mint more BUSD.
The latest stablecoin news comes from PayPal. PayPal introduced a new stablecoin called PYUSD, which is backed by secure and highly liquid assets. While this sounds secure and straightforward, there's a detail worth mentioning. PayPal will utilize US Treasury bonds, T-bills, and other highly liquid assets as collateral to mint PYUSD.
PayPal holds a $1 million US bond as collateral, issues $1 million worth of PYUSD, and provides these stablecoins to customers as an intermediary tool. In return, it receives or holds real US Dollars from customers. Customers offer $1 million in real USD for $1 million worth of PYUSD. PayPal then recirculates this $1 million to purchase more bonds, using them as collateral to issue more PYUSD to customers. It seems like a perfect cycle, doesn't it? The banks do the same but there is a divine detail that banks pay interest for the customer's deposits
Best of luck with this new monetary system where we can print money without incurring any interest.
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