Modern Money for Modern Markets – Part I
Welcome to Vault’s series on the importance of stablecoins to the future of cryptoasset development. It’s all about designing modern money for modern markets.
Crypto markets move fast. Both ways. They present life-changing investment opportunities but this juicy volatility also exposes traders to unpredictable losses. That’s usually why people sell their cryptoassets for cash – one anticipates a downtrend and tries to lock in their profits.
However, crypto exchanges offer few fiat-based trading pairs. Tokens are usually traded against bitcoin or ether, the two most valuable cryptoassets. This is done to improve liquidity – key for well-functioning markets, and because banking relationships are difficult to establish.
Nevertheless, when exchanges do offer fiat pairs, crypto investors are not able to move into a fiat currency while continuing to benefit from the advantages of owning a cryptoasset – from transparency, auditability, and safety to fast and inexpensive transfers any time of the day.
That’s why stablecoins originally appeared – to uphold reliable financial freedom. That is, to help cryptoasset users live in a full-fledged token economy as much as possible. In the case of investors, to be protected against volatility without needing to hold a traditional fiat currency.
This not only allows investors to benefit from the stability of the dollar while still holding a cryptoasset that can be instantly traded for an alternative token – an effective way to diversify their portfolio, but also opens a door for those who can’t access fiat currency due to political issues.
Designed to hold a certain value, stablecoins first appeared in 2014 and are considered the Holy Grail of cryptocurrencies. Plenty of iterations of this concept have been developed, so, in future posts, we’ll compare these with Vault and explain how USDVault (USDV), Vault’s first token, works in detail.
Meanwhile, it’s important to further understand why we need stablecoins, and specifically why a gold-redeemable, USD-pegged cryptocurrency is best suited to sustain and promote the growing adoption the cryptoasset space will likely see in the coming years.
For this, we need to look into how money has evolved over the times. It’s common knowledge to argue money is anything that a) stores value, b) provides a common base for prices, and c) is a medium of exchange that buyers and sellers are happy to use. But could it be anything more?
We posit our society is far from being using an ideal form of money, and that an optimal cryptocurrency should not only fulfill the above functions but also evolve to be able to unlock value in the next steps of the financial revolution, e.g. in the tokenization of real-world assets, among others.
So, over the next articles, we’ll go through each of these needs, analyzing whether the current solutions are able to satisfy such demands. To conclude, we’ll explore how a well-designed stablecoin can be the ultimate blockchain killer app, i.e. modern money for modern markets.