a16z: The future of stablecoins from the history of US banking development

Although millions of people have used stablecoins and traded trillions of dollars in value, the definition of the category and people's understanding of it are still vague.

History is a mirror for understanding the rise and fall of things. If we want to understand the design limitations and scalability of stablecoins, a useful perspective is the development history of the banking industry, to see what works, what doesn’t work, and the reasons behind it. Like many products in cryptocurrency, stablecoins may replicate the history of the development of the banking industry, starting with simple bank deposits and bills and then enabling increasingly complex credittoexpand the money supply. Through the compilation, I was deeply inspired. In essence, I could not escape the three axes of banking monetary theory.

Early adopters of stablecoins use legal-backed stablecoins for transfers and savings. While the stablecoins produced by decentralized over-collateralized lending protocols are both useful and reliable, actual demand for them is lackluster. So far, users appear to strongly prefer stablecoins denominated in USD over those in other (fiat or novel) denominations.

We have also witnessed, for example,  Tether-USDT,

While we see banks do implement simple strategies on deposits,that are actively managed, this represents a small portion of overall capital allocation. It is difficult to use these strategies at scale to support overall stablecoins because they must be actively managed, which makes them difficult to reliably decentralize or audit.SBSDexposes users to greater risk than bank deposits. Users have reason to be skeptical if their deposits are held in such an instrument.  

The era of stablecoins has arrived. More than $16 billion of stablecoins are traded worldwide. They fall into two broad categories: fiat-backed stablecoins and asset-backed stablecoins. Other dollar-denominated tokens, such as strategy-backed synthetic dollars, have grown in awareness but do not meet the definition of a stablecoin as a store of value and medium of exchange.

While this analysis may be useful, we should focus on the current situation. Stablecoins are already the cheapest way to send remittances, which means that stablecoins have a real opportunity to reshape the payment industry and create opportunities for existing companies. More importantly, create opportunities for startups to build on a new frictionless and cost-free payment platform.