Cryptocurrency burst onto the scene as a defiant answer to the privatization of profits and the entrenchment of both legal and de facto monopolies. It heralds a vision of renewed communal ownership, aiming to revolutionize the access to economic resources, and positions itself as a pivotal force for reclaiming public goods, shared infrastructure, and equitable redistribution within a digital realm dominated by private powers.
However, the landscape of cryptocurrency finance is riddled with contradictions that undercut its foundational principles. At the forefront of these paradoxes is the centralization of major liquidity providers and financially potent entities that support networks like Bitcoin and Ethereum. These entities mirror the traditional capitalist structures cryptocurrency seeks to overthrow, exploiting network monopolies to channel wealth toward a select few shareholders, while leaving ordinary users dividend-less and laden with the full spectrum of systemic risks associated with the banking infrastructures these currencies rely on.
This glaring contradiction paints a vivid picture of the current crypto finance market: it is a battleground between the revolutionary promise of decentralization and the persistence of traditional power dynamics under new guises. Despite the aspirational rhetoric, many fiat-backed stablecoins and significant crypto players continue to operate as centralized, private entities. They replicate age-old capitalist mechanisms, concentrating wealth in the hands of a few, sidelining the vast community of users who form the very lifeblood of these systems. These entities not only hoard wealth but also expose users to financial precarities without sharing the economic benefits—a classic case of risk without reward.
Such dynamics call for a dynamic reevaluation of how cryptocurrency ecosystems are structured and function. To truly harness the radical potential of cryptocurrencies as tools for economic democratization, it is imperative to realign these structures with the original tenets of decentralization and community empowerment. Only then can cryptocurrencies transcend their current limitations and achieve their transformative potential.
In the face of profit privatization and de facto or legal monopolies, cryptocurrency represents a pathway toward re-establishing commonality, public goods, shared infrastructure, and redistributive models. However, there exists more than one paradox in the current crypto finance market. Foremost among them lies the fact that the stable coins giants and most capitalized structures are predominantly private entities built on the same models as the capitalist actors that the crypto world is meant to replace. These actors profit from network monopolies to the benefit of a few shareholders, at the expense of users who receive no dividends and bear alone the risks of default from the banking infrastructure to which they are tethered.
At the heart of a digital landscape where user-generated profits are concentrated in the hands of a few and where de facto or legal monopolies remain unchallenged, cryptocurrency has been envisioned as a beacon to reignite a sense of communal ownership, reclaiming public goods, shared infrastructure, and fair value redistribution. However, an examination of the current crypto-finance market reveals a series of troubling paradoxes.
Most striking among these paradoxes is the realization that the liquidity titans in the form of fiat-backed stablecoins remain centralized private actors. These players are structured on the same capitalist frameworks that the cryptocurrency domain aims to render obsolete. Profiting from network monopolies, these entities channel wealth towards a select group of shareholders, while end users, the true lifeblood of the system, reap no returns and are left to bear alone the risks associated with the banking structures that underpin their transactions.
In the face of profit privatization and de facto or legal monopolies, cryptocurrency represents a pathway toward re-establishing commonality, public goods, shared infrastructure, and redistributive models. However, the current crypto finance market is rife with paradoxes. A primary contradiction is that the fiat-backed stablecoin giants are the most capitalized entities behind Bitcoin and Ethereum are predominantly private organizations, built on the same capitalist models that cryptocurrency aims to supplant.
These actors transfer the risks tethered to the banking infrastructure onto their users. Adding to their challenges, these users have faced an inflation risk that eroded more than 30% of their value over the past decade, a period that coincides with the emergence of the first stablecoin. Meanwhile, the giants behind fiat-backed stablecoins profit from network monopolies to channel wealth towards a select group of shareholders, at the expense of users who receive no dividends, lose money, and bear all the risk.
Unmasking the Mirage: Fiat-Backed Stablecoins as the New Faces of Traditional Banking
In the enigmatic realm where finance meets technology, a peculiar mirage has emerged – Fiat-backed stablecoins. Promoted as the heralds of financial liberation, they mask a reality reminiscent of the very traditional banking structures they claim to disrupt.
Consider the mechanics of giants like Tether and Circle: Liquidity poured in by eager acquirers fuels the creation of stablecoins on the primary market. In return, these entities issue tokens, mere digital proxies of a $1 debt. Often, they artfully skirt the admission that these stablecoins represent a debt owed by the issuer, leaving room for arbitrary repayment terms.
Much like their traditional counterparts, commercial banks, these stablecoin issuers function as intermediaries. Depositors exchange liquidity for a claim over the issuer's assets, which are lent out or invested, yielding profits for the issuer.
Yet, the veil of innovation shrouds their true nature. Fiat-backed stablecoin issuers are nothing but commercial banks in disguise. The key distinction lies in their inability, for now, to employ fractional reserve mechanisms.However, this illusion of autonomy unravels upon closer scrutiny. Tether and Circle, are tethered to commercial currencies, relying on 'lender of last resort' banks for immediate liquidity. This dependence breeds default risks, as evidenced by the precarious situation of SVB in March 2023, rescued only by the intervention of the U.S. government.
In essence, these entities falter on two fronts: safeguarding stablecoin holders' capital and aligning interests with equitable value distribution relative to risk exposure.
A deeper dive unveils a troubling reality. DeFi, touted as the epitome of decentralized finance, predominantly rests on the shoulders of private entities wielding unchecked power over the tokens they emit. One could argue that Tether and Circle, in the grand tapestry of DeFi, morph into Trojan horses, heralding systemic risks that reverberate throughout the crypto landscape.
In this intricate dance between innovation and old model, the façade of decentralization fades, revealing the lurking shadows of familiar banking structures. Fiat-backed stablecoins, once heralded as harbingers of a new financial dawn, now stand exposed as guardians of a system eerily reminiscent of the one they aimed to replace. As the echoes of systemic risks resonate, the imperative for transparency and accountability grows ever louder, echoing through the corridors of crypto's evolving narrative.
Breaking the Circle: USD0 and the Quest for a New Financial Paradigm
In the ever-evolving landscape of decentralized finance (DeFi), the call for a new order resonates louder than ever. Usual emerges as a cornerstone, a pivotal force in reshaping DeFi liquidity. At its core lies a commitment to transparency, security, and, above all, a departure from the traditional models that have long dominated the scene.
The first imperative of a stablecoin transcends mere transparency—it lies in its ability to safeguard the value relative to the currency it represents. Users must be assured that the likelihood of losing their capital is negligible. While the intrinsic value of fiat currencies remains questionable, given their decades-long inability to serve as a reliable store of value, it is inconceivable that a currency worth a certain amount one day should plummet the next, especially if we aspire to universalize stablecoins in the near future.
Central to this endeavor is the necessity for a stablecoin to be backed by an asset that closely mirrors central currency. This precludes tethering stablecoins to commercial currency, which poses a systemic risk to DeFi, vulnerable as it is to fractional reserve practices of banks.
In this regard, sovereign bond debt remains the optimal asset for collateralizing a stablecoin. In the absence of state backing, the current monetary system is precarious, making sovereign debt the most liquid and secure asset to underpin an on-chain monetary equivalent.
However, to ensure a high level of security for its holders, the issuer must collateralize the stablecoin only with assets of very short maturity. This ensures that under all circumstances, especially in the event of a significant redemption of the stablecoin, the issuer will not have to liquidate its positions on the secondary market at a discounted price, which would result in losses for stablecoin holders.
The second imperative mandates a strict and transparent prudential policy, with publication of reserve assets ensuring at all times that the face value of the stablecoin is covered 1:1 and that the risk policy is adhered to by the issuer. In the context of a decentralized issuer, delegating risk policy validation to the governance holders of the issuer makes sense.
The momentum is undeniable. On-chain RWA liquidity is on the rise. Yet, predominantly permissioned, it remains non-composable in DeFi, inaccessible to individual users. It is confined to being an in-and-out product or a trading collateral for counterparties on certain exchanges. At present, it lacks the liquidity infrastructure that would enable holders to fully leverage its potential.
Usual Labs is convinced that a new stablecoin must emerge in the crypto market. USD0 aims to bridge the liquidity gap between RWA and DeFi, allowing for seamless integration of liquidity from both realms. USD0 offers a composable stablecoin in DeFi with maximum interoperability while ensuring a higher standard of security and shared governance to protect user capital.
In the quest for a new financial paradigm, USD0 stands as a beacon of innovation, guiding the way toward a more inclusive, transparent, and resilient financial future. As the winds of change gather momentum, the time has come to break free from the shackles of traditional finance and embrace the transformative potential of USD0.