Recently I wrote a post on Hive about the US government's stash of BTC. It made me wonder about dollars being possibly being backed by that bitcoin. A Hiver made a comment to that post, and I'm paraphrasing from memory, something like:
"Cool, I didn't know bitcoin was backed by dollars."
I wrote back and explained that, well, bitcoin wasn't backed-by-dollars. I was actually writing about it in the other direction, as possibly dollars being backed-by-bitcoin...supposing that someone might want to trade in their dollars to gain BTC. But, that's okay.
The more I thought about it, it occurred to me that she's actually kind of right. In a way, Bitcoin actually is backed by dollars...at any moment, you can trade in your BTC and get dollars. It's called selling BTC on the market for USD. And, in a way, dollars are backed by Bitcoin...at any moment, you can trade in your dollars and get BTC. It's called buying BTC with USD.
By selling/swapping/buying, you get the other at the current market exchange rate.
The more I thought about it, I've started to conclude that through current exchange rates, bitcoin is a stablecoin, and so is every other cryptocurrency, and even also is every other fiat currency.
And, what's more, what we call "stablecoins," tokens like Tether or USDC or USDP or our HBD here on Hive, are really little more than "lazy man's stablecoins."
Hear me out...
What actually is a "stablecoin"?
This seemed like a silly question, but I'm not so sure it's as silly as it might seem on the surface level. Let's take the fictitious stablecoin STAB and think this through.
"Stablecoin" normally means 1 STAB = 1 USD. "Stable" refers to the 1:1 ratio. 1 STAB, or any fraction of STAB, can be swapped over into 1 USD, or the same fraction of USD. This can be done the other direction too. Simple...the 1:1 ratio is the stability. The exchange rate is stable at 1:1. Even a lazy person can do it.
Another way of thinking
"Stable" could mean the stability of getting the current market rate of exchange. Note that this is not saying you get the same rate all the time, it's saying you stably get whatever the market's current exchange rate is.
This viewpoint is a different way of looking at "stable" in a stablecoin. The 1:1 stablecoin is almost a "lazy man's" stablecoin. What we're really trying to do is to convert value from STAB to USD. Using the 1:1 ratio makes it easy (lazy?) to estimate value transfer in our heads. "Oh, $10 in value over to 10 STAB, sure, I get it." But, value transfer can be done with any ratio, like 1:29, it just requires a bit more math.
I know that people will say that the whole point of a stablecoin is to not wind up with different values from day to day or week to week. This is what happens with USD-to-bitcoin (or doge, or HIVE, or whatever). The idea of a 1:1 stablecoin is that $10 will always be 10 STAB. Point understood.
But, what I'm saying is that what we really want, what we're really trying to accomplish here isn't the consistent syncing of numbers, it's the consistent and stable syncing of value. The fact that the numbers might differ at any time is of no regard. If a dozen eggs costs $4, or if it costs 25 STAB, who really cares? If the current ratio of USD to STAB is 4:25, it's all equal. Using a traditional 1:1 stablecoin might be easier to conjure in our minds, but it's little more than the lazy way to compute the value. The 4:25 ratio works fine, the 1:1 ratio is just easier (lazier) for we mortals to compute.
Really! Stablecoins are lazy? Let's consider what's going on with traditional 1:1 stablecoins. There are two routes going on here:
Route 1: Dollar-backed stablecoins are, as they sound, backed by US dollars. These are the simpler tokens where every token, supposedly, has a dollar stashed in a bank somewhere. Either can be swapped at any time. In this way, one USDC remains pegged to one USD.
Route 2: Algorithmic stablecoins, like HBD, are pulling mathematic gymnastics under the hood. The algorithm is auto-balancing the value exchange of HIVE to US dollars. We don't see the smart contracts actions, but they're working silently to keep one HBD to equate to one USD. Notably, it does this by leapfrogging from HBD-to-HIVE, and particularly, converting HBD into HIVE using the HIVE:USD current exchange value on open markets. In other words, if HIVE is currently worth $0.50 USD, you get 2 HIVE when moving from HBD to HIVE. This route 2 is converting value using the current market exchange rate on the back end, but doing it with a visible 1:1 lazy man's front end.
Other coins might actually be better stablecoins
Again, the goal of these coins is to exchange value. The normal stablecoins simply make the numbers easier for us to wrap our heads around, but, any ratio of value exchange will also work...there's no rule that says it must be 1:1.
Further, there's a chance coins like bitcoin or doge or ETH might actually even be better stablecoins.
How?
Two reasons:
Again, the goal of these coins is to exchange value. These coins have very high volume and are actively traded. Value exchange is acquired by swapping on an open, free exchange with high volume. Such a market is the most responsive to market forces. That is, it reacts most quickly, responsively, and precisely to changes. An algorithmic stablecoin, by contrast, likely will require some time to react. It is, then, more of a "lagging indicator" of value. It lags behind the real-time current value that is constantly being played out on an exchange 24/7, 365 days a year.
Secondly, even stablecoins-backed-by-dollars may be a bit off. The assumption here is that the dollar's value is stable. That one dollar is one dollar. Well...as we've seen with the recent couple of year's inflation, this is not necessarily the case. A dollar today is not a dollar of yesterday, certainly not what it was ten years ago or more. It simply doesn't buy as much stuff today.
Weeds
The "Secondly" concept above gets us into the weeds a bit (if we're not already there). I've written about stablecoins having the goal of exchanging value via the lazy easy 1:1 math ratio. The value of money, ultimately, comes down to its buying power in real-life things.
For some reason, I always think of eggs. I believe I turn to eggs because they're universally agreed to have value and come in a somewhat standard unit. Eggs are tangible items of value that even a toddler can understand. Right now, one US dollar will buy about 4 eggs (maybe!). A few years back, one dollar might get you 8 eggs. The value of that dollar is hardly stable. That 1:1 stablecoin hardly is stable.
Consider a coin like BTC or LTC, being fluid in its USD exchange rate on an always-live market. Such coins just might be even more reflective of real current egg value. In this way, coins like bitcoin could be considered as more stable in exchanging value as compared to "stablecoins" which are locked into a 1:1 ratio.
Maybe.
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