Stablecoins are a defense technology

Stablecoins are a defense technology.

This idea had been floating around in my head since 2018. At the time, I was in Washington meeting with regulators about Libra (Meta’s or, at the time, Facebook’s stablecoin project). One of my personal motivations behind Libra was national defense.

The basic idea is that the future of money will be more digital than physical. And stablecoins – in this case, cryptocurrency pegged to a stable currency like the USD – are the best tool we have for digitizing the dollar. If we don’t digitize the dollar, we risk losing its position at the center of the financial world. If that happens, we will lose a fundamental pillar of American stability and leadership that most people right now take for granted. And if the US government doesn’t recognize it soon, someone else will. (If they haven’t already, 👋🏻🇨🇳). Hence the defense angle.

If you’re a stablecoin founder and haven’t thought of yourself as a defense technology company, think again. And if you are a regulator who has been sleeping on stablecoins and the role they will play in dollar hegemony, wake up.

This is the time to act. THE The market capitalization of stablecoins is close to $150 billionAND adoption continues to increase.

If we want to create stable infrastructure – for finance and also for democracy (bear with me) – then we need to move quickly.

And with that…

Because stablecoins are a defense technology

Let’s start with a quick history lesson.

The dollar has been the world’s main reserve currency since the Second World War. This was decided at the 1944 Bretton Woods Conference, which was also the crucible for the World Bank and the International Monetary Fund.

The great European financial centers were on fire, and the United States had its moment to step up and cement the dollar at the center of the post-war world economy.

Bretton Woods formalized things by creating an exchange rate system in which other countries could measure the value of their currency relative to the dollar, which at the time was pegged to the value of gold.

Of course, the dollar is no longer pegged to the value of gold. But it still represents the strength, stability and geopolitical weight of the United States. So we continue to navigate using the power of that idea.

Being the world’s reserve currency is not a right. It’s a privilege. It has some financial advantages, such as never having to go through an exchange process for trade, or being able to borrow money at lower interest rates (and, in a different light, it makes it easier for us to impose sanctions on other countries ). ).

But real power is security. If the dollar were to collapse, it would have enormous repercussions on the entire world economy. Much of the world’s monetary system is held together by the fact that the United States is stable. This means we are less likely to experience targeted attacks, financial wars, hostile takeovers… or worse.

This is a fact that we also recognize in our publications national security strategy. International financial institutions are a “force multiplier for our values ​​and interests”.

And it is a fact that China is eager for change.

Recently, the CCP released a report on “American hegemony and its dangers” with an entire section focused on dollar dominance. A quote from that section: “America’s economic and financial hegemony has become a geopolitical weapon.”

From our American perspective, the USD is not so much a weapon as a shield. However, China’s use of this language is significant. There are many countries out there that would like to use this world reserve currency status as a weapon.

It has always confused me that there are still US regulators who don’t see safe and secure stablecoin projects like our (benign) Trojan horses for the continued dominance of the US dollar. If you want to proliferate your currency across many stable assets, across many secure exchanges, what better option do you have than a stablecoin? It’s also free marketing for USD: an immediate way to give access to those dollars to millions of people around the world who want them through a decentralized network.

If we don’t find a way to protect that trademark, someone else will try to use (or abuse) it.

The good news

Despite ourselves, there is no shortage of good news.

99% of stablecoin projects they are pegged to the US dollar today.

Paradoxically, the fact that we have not moved quickly, or even at all, to digitize the dollar from the top down may be the best-case scenario. It allowed us to grow the ecosystem organically.

In the past, US hegemony has been a push dynamic. But digital hegemony has been more of a pull than a push. It is proven that people want stablecoins and entrepreneurs have created solutions. It was actually beautiful to watch.

A diverse stablecoin ecosystem is exactly what we want to see. Not just for consumers, but for national security. Many projects pegged to the US dollar make the dollar much more difficult to overcome.

But we need regulators to do one thing: clarify the rules of the game, which may be an extremely low intervention. For example…USD mark.

Trademark of the USD

Back to Washington in 2018. I remember being in a meeting with Treasury and asking them if “USD” was a registered trademark. “Why?” they asked me like I was crazy.

If you think about it, there is no official definition of a true digital US dollar, at least from the government’s perspective. This means that virtually anyone can create a digital “US dollar” – in other words, anyone could counterfeit a US dollar in 15 minutes. We could launch NFX-USD today.

On a larger scale, this hypothetically means that China has no obligation to even call an RMB-backed stablecoin what it is. They could literally use the US dollar brand and tie it to their currency under the hood. Nobody is watching.

Instead of letting the US government build their own digital currency (which they have considered doing), they just need to clarify the rules of the game.

The commercial branding of the USD begins with the true government-backed definition of the US digital dollar. It concludes with a set of requirements that further enable the good guys by providing regulatory clarity to entrepreneurs. And at the same time it protects consumers from bad actors.

Some suggestions for such requirements:

• Fully guaranteed reserves
• Verifiable finances
• Founders of KYC-d

This effectively allows the government to entrust capitalism to build, grow and sustain the dollar in the digital space.

It’s simple and beautiful, if we make the rules clear.

Appeal to the Founders

I would be a lot more sleep deprived right now if it weren’t for one thing. Every day I meet more and more stablecoin founders. You are motivated, talented, intelligent. You are scrappy and experienced and see this problem for what it is.

We have a network of stablecoin founders across the United States who can step in to solve this problem for us, if we provide them with the resources and support they need. Cryptocurrency obsessives like to focus on individual coin market caps, but come on guys: this is a team sport.

Technically and organizationally, stablecoins will allow the dollar to proliferate digitally. We have decentralized teams of founders, not to mention the decentralized nature of cryptocurrencies, coming our way. It’s a truly elegant solution, fueled by the American Dream, if we give these networks what they need to thrive.

This is what I hope all stablecoin founders understand, if you don’t already know. Your work is a matter of national defense and even a matter of democracy.

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