According to Preston Byrne, stablecoins are “not stable,” and are doomed to fail.
While there is a great need for more “stable” cryptocurrencies, one can’t just mint tokens and declare them stable. There has to be an underlying mechanism to make it so. But even the assumption that such a mechanism exists is questionable.
In a series of Tweets and posts, blockchain technologist Preston Byrne, who has been saying that “stablecoins are doomed to fail,” lambasted the idea and the team behind it.
Byrne’s statements may sound quite harsh, but a little peek at the Basis white paper pushes one to side with Byrne. In their white paper, Basis wrote: “During an economic boom, people have more money, so they want to buy more goods, causing the prices of goods to rise, which fuels demands for higher wages, which means people have even more money.”
With all due respect, that’s not how the world works. In general, wages rise at a significantly slower pace than inflation does. The only time there is a sudden jump in wage ranges is during special situations where new technologies arise that require an entirely new set of skills very few readily have, which means there is an initial disparity between the supply and demand of workforce. But when prices of goods rise, people can’t just “demand for high wages” and be automatically granted it so that they “have even more money.” The most likely reaction is for people to decrease or put off spending until market prices are more favourable.
According to Byrne, there are no such things as stablecoins, and those attempting to offer it thinking that cryptocurrencies are exempt from the laws of economics are mistaken.
In one of his earlier posts, Byrne—who himself admits he has a “deep and enduring disdain for the ‘stablecoin’ concept,” expounded on what he finds preposterous: “the idea that it is possible for ‘crypto-economic’ magic and game theory to ensure that a cryptocurrency can be reliably pegged to the value of some real asset without requiring a bankruptcy-remote contractual mechanism to ensure convertibility of the crypto-asset into the real deal (something mainstream finance already does extremely efficiently).”
Writing about previous stablecoin projects that “broke” within 12 days, Byrne says we’ll see whether Basis could break that record. “TBD: whether Basecoin can set a new record by making it two whole weeks,” he wrote.
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