Will the Great Power Game push stablecoin trading to its peak?
Guru said that stablecoins are something that external users really need, and they can solve many practical problems, including overseas payment, financial management, and savings functions. The core of DeFi revolves around stablecoins. There is no upper limit on the size of stablecoins, and the highlight of stablecoins has arrived.
Recently, the massive increase in stablecoins, including USDT, USDC, HUSD, etc., has attracted the attention of the entire coin community, and media coverage and analysis of this has gone up and down. At the beginning, everyone was skeptical about this increase. Soon, more in-depth analysis followed, with more and more detailed and persuasive data, giving everyone a more comprehensive understanding of the development of stablecoins.
MakerDAO's founder, Rune Christensen, is probably the first person to come up with the stablecoin concept in the cryptocurrency space. In the BitShares era, Rune Christensen created bitCNY with the BitShares core team. bitCNY is a digital stablecoin pegged to the yuan. BitCNY does not rely on third-party endorsements, and its value is guaranteed by BTS with 2 times the value behind it (it feels very similar to how Dai is generated as collateral). This is the first decentralized stablecoin backed by cryptocurrencies. Its goal is to rely on the BitShares system to make bitCNY faster and more convenient than Bitcoin with a global quick transfer function with extremely low transfer fees. However, as far as my personal experience is concerned, bitCNY's services and processes are not friendly at all. My study fee is ¥100 because I can't transfer this money anymore. To use the BitShares platform to develop a stablecoin project, you must work closely with the BitShares team, otherwise it will be difficult to operate.
(Picture source:MarkerDAO）
After the birth of Ethereum, the founders of MakerDAO were overjoyed, because the bottom layer of Ethereum and the application layer were separate, and they were finally able to develop their own project ecosystem at the application layer. Guru noticed the MakerDAO project a long time ago. He contacted Rune Christensen in the community and bought some Makers from him, translated MakerDAO's English white paper into Chinese, and called stablecoins generated by collateral cryptocurrencies as Dai, which is synonymous with the “loan” of Chinese loans. MakerDAO's stablecoin project issued by Ethereum was quite successful. Prior to the 3.12 Black Swan incident, the MakerDAO project had about 80% of the DeFi market share. The price of MKR has recently exploded because MakerDAO has developed an agreement that allows users to convert real assets into securities that can issue ERC20 tokens with interest, such as tokenizing music streaming royalties.
Regarding payments, I agree very much with Hayek's statement that users tend to spend the currency that is depreciating first and keep the currency that is appreciating in their hands. For example, when KEY is in an upward channel against RMB, I prefer to issue RMB instead of KEY red envelopes. The consumption of currencies that are in an upward channel will be delayed. In this case, there are few options for the recipient.
However, if this is an act of buying and selling, the situation is slightly different. In international trade, both buyers and sellers expect the exchange rate of the payment currency to be relatively stable. Otherwise, when opening an LC, the handling fee paid to the bank will be very high, because banks need to bear the high risk of exchange rate fluctuations. For ordinary people, because they need to buy daily necessities every day, the stability of the payment currency is also very important to them. In Venezuela, which is experiencing hyperinflation, on the day the wages are paid, once the wives receive the salary from their husbands, they immediately purchase the goods, because prices are changing all the time, and the goods are getting more and more expensive in fiat currency. Similarly, for retailers, receiving a currency with extremely volatile exchange rates, it can also feel unspeakable suffering if its liquidity is poor and they cannot get rid of it quickly.
Therefore, as a payment type currency, it must have high liquidity, and currency prices need to be relatively stable in the short term. This is why central banks need to spend huge sums of money every year to keep currency exchange rates stable in the short term, because it involves issues of the national economy, people's livelihood, and social stability. In countries such as Venezuela, Argentina, Turkey, and Lebanon, where the exchange rate of the fiat currency fluctuates a lot all year round, people have lost confidence in their own currency, causing the country to lose many macro and micro control methods, and currency resets have become inevitable, and this may further cause domestic turmoil. As a result, Guru believes that even the two unicorns in the cryptocurrency field, Bitcoin and Ether, have high volatility and low liquidity, so they don't have the conditions to be used as payment currencies.
Guru believes that the network effect of money comes from pricing (settlement). The pricing function as a value scale is the moat with the greatest effect on the monetary network, while the high volatility of Bitcoin and Ether as pricing tools makes them very bad in terms of pricing function. In fact, they are more suitable as assets. In the current situation, the monetary order is still determined based on factors such as national sovereignty, military maintenance, and politics. The country has contributed greatly in maintaining social stability and cooperation between people. Under the current COVID-19 pandemic, the importance of the country in maintaining order and governance has been fully demonstrated. Unless there is an external reason, such as Japan's occupation of Taiwan, it is difficult to change the monetary order. Bitcoin and Ethereum are maintaining the order of the crypto world, but the crypto world's economy is still too small compared to global GDP and is not a mainstream order. It is still too early to discuss the Bitcoin standard or the Ethereum standard.
There is no denying that the game between major powers, the novel pneumonia is raging, and the trend of de-globalization seems irreversible. Major powers have lost mutual trust, and various financial and trade sanctions have followed. For example, when the US sanctioned Russia before, Russia was prohibited from using the SWIFT system, which greatly affected Russia's foreign trade. So, how can the Russian people find a way to solve the problem? What is filling this gap that SWIFT has left? The answer: stablecoins in the cryptocurrency sector.
(Picture source:Yahoo Finance）
US sanctions against Russia are a thing of the past; US sanctions against Hong Kong are likely to take place in the near future. Since the National Security Law is about to be implemented in Hong Kong, the US believes this harms its interests in Hong Kong. Why are you saying that? Hong Kong's treasurer Chen Maobo mentioned in his website that Hong Kong is the third largest US dollar foreign exchange trading center in the world. It provides various investment, wealth management, trade and settlement services to many Asia-Pacific and even international enterprises, and is closely linked to the global economy and financial system. US Treasury Secretary Mnuchin recently stated that the US may restrict capital flows through Hong Kong in response to China's implementation of the Hong Kong version of the National Security Law. If the US actually restricts Hong Kong's use of SWIFT, will these sanctions significantly increase physical application scenarios for USDT and other stablecoins?
Of course, the Chinese are excited about DCEP, the digital dollar being studied by the US, the digital euro being developed in Europe, and Libra issued by private institutions... They are all like stablecoins in the cryptocurrency industry, and have the characteristic of instantly crossing national borders. However, countries and regions must carefully consider whether the financial order established over a long period of time will be disrupted as a result. Some countries are still considering whether they should use a token model or an account model? Libra's issuers need to discuss with various countries to resolve compliance issues, leaving Libra in a regulatory maze. Currently, fiat payment solutions can only be tested locally, such as WhatApp. All of the above situations may cause the country's digital fiat currency or compliant stablecoins, such as Libra, to some extent to lose their chance in physical application scenarios.
Guru believes that under the intensification of the game between major powers and the general trend of de-globalization, stablecoins, which are already very popular in the coin industry, will come out of the market and become alternative payment currencies. According to rough estimates, SWIFT processes three times the global GDP and amounts to $3 trillion in transactions each year. This is a huge cake. If stablecoins were to be used more in certain cross-border transfer scenarios because of the game between major countries, and then widespread popularity would form a network effect, it would bring huge business opportunities to cryptocurrency practitioners.
According to recent data, the stablecoin circuit is growing rapidly, with a market capitalization of more than 11 billion US dollars. Recently, I even learned from the news that fees on Ethereum have surpassed fees on the Bitcoin network, and stablecoins are currently the largest application scenario on Ethereum, accounting for more than 60%. Scenarios where stablecoins can be used include exchanges as a medium of transaction, contract collateral, such as collateralizing USDC to generate DAI, and more and more stablecoins are being used for online purchases. For example, I have seen that many cross-border platforms that buy overseas website browsing tools have long accepted stablecoins and other cryptocurrency payments. A friend's answer is very classic. She thinks Bitcoin is on an upward trajectory and stablecoins must be spent first. In entity application scenarios, the stability of currency exchange rates seems to have become a killer. In contrast, Bitcoin has become an asset in these stablecoin reserve pools.
(Picture source:Comparative）
Guru believes that stablecoins are something that external users really need, and that they can solve many practical problems, including overseas payment, financial management, and savings functions. The demand for stablecoins is very definite and has been verified by the market. Over a long period of time, regardless of the rise or fall of Bitcoin, the stablecoin market value has been growing slowly. Beginning in February 2020, the market value of stablecoins began to advance by leaps and bounds, indicating that stablecoins have gradually been recognized by the market.
Gulu and the MYKEY team already set up the stablecoin circuit in 2018. They believe that in order for cryptocurrencies to get out of the market, wallets must first be able to have no entry threshold. In other words, they must be as friendly to the people as Alipay, because educating users is very expensive, and the opportunity will be fleeting.
(Picture source:MYKEY）
Guru's outlook is that now the MYKEY smart wallet is basically as easy to use as Alipay. In theory, everyone can use the smart wallet very easily. If they are afraid that the wallet cannot be recovered due to a lost key, they can also apply for a recoverable account and get help when needed. MYKEY's next step is to seize the time window for the rapid growth of stablecoins, firmly grasp the trend of stablecoins, and deposit more users and applications into MYKEY's account system.
The MYKEY team's biggest goal at present is to provide users with more application scenarios, such as stablecoin transactions, stablecoin financial management, the establishment of stablecoin balances, etc. According to the data, there are millions of cross-border users around the world who are Chinese alone. Guru believes that this large user base is large enough for the current coin market.
(Picture source:Wikipedia）
(Note: The yellow curve is the market share market share, and the blue curve is the proportion of people using the product or service）
The development of each new type of industry is gradual. Even with China's Internet, which seems to be very developed today, there are still many industries that are only now beginning the Internet+ process, such as Internet+Healthcare, Internet+Education, etc. The Rogers Innovation Curve (Rogers Innovation Adoption Curve) shows that every innovation takes many years to slowly become popular and used by the general public. The cryptocurrency sector is no exception. The group that first adopted it should have the strongest demand. For example, the Chinese living in Moscow often used USDT as a payment currency for cross-border payments in the context of Russia being sanctioned by the US.
Business opportunities and application scenarios spawned by international political and economic changes will accelerate the spread of stablecoins out of the market. This is probably a huge outlet that cryptocurrency practitioners can encounter and not seek. I hope everyone can seize the opportunity and enjoy the benefits of using the cross-border payment function instead of the US dollar in the scenario where SWIFT may be absent, seize more business opportunities for stablecoin financial management, and become a booming pig in the stablecoin trading and financial management market...
By Claire Wu, a writer from Twitter
This article is a comparison of the original work. Reprinting requires authorization, and violators must be investigated.
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