A simple question that someone asked me the other day that I’m still struggling to answer:
If Grin aims to be a better cash than Bitcoin, why is better than a stablecoin?
The person who asked also added, why can’t we assume that stablecoins could be transacted with a mixer or MW side chain to achieve the same properties as Grin… Is that setup feasible, and if so, why is Grin superior to a form of cash with much less volatility?
The problem with some of the stable coins is that they are meant to be backed by actual fiat currency reserves. In the case of USDT, the company behind it refuses to be audited to prove they in fact have the reserves. Stable coins are not technically cryptocurrencies. They are more focused on hedging against volatility. And, also to my knowledge (correct me if I am wrong here), all stable coins are merely ERC20 tokens on the Ethereum blockchain. None of them can currently stand on their own. With that said, USDT is still quite popular.
On the other hand, true cryptocurrencies, like GRIN, are not backed by anything of intrinsic value and are subject to quite a lot of volatility as the market cap is not nearly as high as the average fiat. Over time and with continued growth and acceptance this will ease off, and then the stablecoins will no longer have much purpose.
Grin will never be as stable as a pegged asset, even at peak adoption. Peoples’ expectations of cash are that it remains the same value. I don’t see how Grin is an improvement on something like Dai or USDT with privacy features.
“Remain the same value,” meaning the units of currency are not changing, even if the underlying value is changing relative to the cost of living.
The problem with the stablecoins is that they cannot guarantee it will always be pegged to the underlying fiat. It largely relies on the existence of fiat reserves. Further these fiat reserve are typically held by a centralized entity.
So, in the case of USDT, if the company backing it fails to have the 1:1 reserves then the coin is worthless. And as the company refuses an audit, that calls their reserves into question. If anything ever happens to the company, then, again, the coin is worthless.
The centralized nature of these coins goes against the very idea of cryptocurrencies as being decentralized.
As to “remaining the same value”, fiats have never done so, as inflation erodes value.
Have a look at this article as it will probably explain things better than I can: What are stablecoins?
Stablecoins can be collateralized with synthetic assets only. Dai survived a ~85-90% drawdown in the price of Eth. I imagine that Libra will have a 1:1 reserve (or a fully insured reserve) if it ever manages to launch.
I don’t really think the public would perceive something like USDT as backed by nothing. That’s the mainstream perception of Bitcoin. The FedCoin would probably be accepted by everyone without much hesitation.
My question was more, if Bitcoin is pivoting to the digital gold narrative, how does something like Grin capture the “cash” narrative better than a pegged asset with the same privacy properties?
I suppose that is quite subjective and depends on one’s interpretation of “Better”. This definition is likely to vary depending on the person and their individual needs. In short there is no single definitive answer and is merely a reflection of one’s perception of what is and is not acceptable.
Fiat backed stablecoins can’t combine auditability and censorship resistance.
Mass adoption of synthetics and/or crypto backed stablecoins deflates the value of the reference asset or currency.
The value of a floating cryptocurrency becomes “stable” when it is adopted as the dominant unit of exchange in the relevant market.