The USDC Network
Is Crypto-US Dollar Symbiosis the Last Great Hope for the USD?
I believe in America.
Yes, I know all about the bad side of American history. I know about the genocide of American Indians. I know about slavery. I know about how women weren’t allowed to vote for a large portion of American history. I don’t deny that these things are a part of American history. They are, and I abhor them. So, let’s get that out of the way.
What most privileged (and often white) liberals and academics would have you overlook, though, is that America is also the place where people have come for centuries now to express their human ingenuity - to bring their ideas to life - in exchange for financial compensation in the form of the U.S. Dollar, the most trusted monetary network in the world. And yet one of the greatest American innovations of the modern era is actually a new currency, the also very trusted Bitcoin.
This tension between Bitcoin and the U.S. Dollar has created a stir amongst the powers that be on both the right and the left in America. Many are beginning to fret that Bitcoin could replace the U.S. Dollar as the world’s reserve currency. This may happen in time, sure, but the main question for this edition of the newsletter is “Do Bitcoin/cryptocurrency and the U.S. Dollar need to be at odds? My answer is “no”. I’ll explain why in just a moment. Let’s first listen to this exchange between Ritchie Torres, U.S. Representative for New York’s 15th congressional district (mostly comprised of the South Bronx), and Chad Cascarilla, Paxos CEO, about stablecoins.
Torres: “One of my concerns about crypto is that it would present a challenge to the supremacy of the U.S. Dollar as the world’s reserve currency, but what I have found striking is that the leading stablecoin issuers have actually chosen to peg their stablecoins to the dollar, which strikes me as a vote of confidence that reinforces rather than challenges the status of the dollar as the world’s reserve currency. So, what are your thoughts on the relationship between the dollar and the crypto? Is it as contradictory as many have feared, or could it actually be complimentary?”
Cascarilla: “I’ll answer that. I actually don’t think that it’s contradictory at all. What people want is a U.S. Dollar bank account. Everywhere in the world, people want to have U.S. Dollars, and, actually, that’s the hardest thing to get. And crypto is a tool for a lot of different things including bringing communities together, but what people want in order for their everyday spending is dollars. If you are in Argentina, you want dollars. If you are somebody anywhere in the world, you want to have access to dollars. And that’s the hardest thing to get access to right now. And that’s why tokenized dollars are so valuable, because you don’t need to have a bank account, yet you can have access to the dollar-based system. [It is] a very, very important tool for inclusion.”
I agree. Access to the U.S. Dollar is an important tool for inclusion. (And speaking of inclusion, please support pro-crypto candidate Aarika Rhodes for Congress next year!)
Don’t know who Brad Sherman is? He’s this clown.
Back to the Dollar…
In a previous edition of the newsletter, I highlighted the thread below.
If you haven’t already read through it, I highly recommend that you do so.
TL;DR - In the thread, Tascha argues that the United States’ biggest export isn’t Hollywood or tech, it is the U.S. Dollar, and that the U.S. should do more to invite people into the “USD network”.
USD is a currency that many around the world, especially those facing the collapse of their nation’s currencies, want to get their hands on (see Venezuelans, Turkish people, Argentinians, etc.).
As Cascarilla said, tokenized versions of the USD are the easiest way for many to get their hands on the currency. While the value of the USD is melting like ice cubes here in the U.S., it is doing so at less of a rate compared to the currencies of some of the citizens of the countries mentioned above, and, therefore, people like to save in USD. And, in 2022, all they need is an internet connection to buy some USD.
However, not all tokenized USD is the same. Tether, or $USDT, has been reported as being notoriously shady in regard to its not disclosing the underlying assets that back $USDT. (I personally do all that I can to stay away from using $USDT.)
So, when it comes to choosing a USD-backed stablecoin, $USDC is quickly becoming the standard. For more on why this is the case, please check out pp. 89-90 of Messari’s Crypto Theses for 2022. I’ll highlight four key points that the author of this document, Ryan Selkis, makes:
We should rally around liquid, well- regulated stablecoins that are integrated across the crypto ecosystem, and Circle’s USDC and Paxos are the only serious contenders today.
USDC is the only interoperable already between Binance, Coinbase, and Kraken (and Huobi and OKEx), and it is a stronger DeFi bridge vs. Paxos. To absorb marketshare from Tether, the winning stablecoin must be ubiquitous, and USDC is an order of magnitude larger than Paxos.
Our alternatives as a country are to watch DCEP [China’s national digital currency] replace the dollar as a global reserve, outcompete China with our own full-surveillance currency (I don’t predict any kind of public response!), or rally around fully-reserved, well-regulated stablecoins.
If the dollar loses its reserve currency status, it will be very bad for global geopolitics. I’m not sure such an epic transition of power would be peaceful.
Selkis goes on to discuss how $USDC releases audited reports of its reserves on a monthly basis, and how $USDC has already been used by the U.S. government for "Global Foreign Policy Objective” in Venezuela.
In short, the fact that many in the world still embrace the U.S. Dollar (despite our reckless spending and money printing) remains a good enough reason for a well-regulated tokenized and borderless version of it to exist. The volatility of other digital assets like Bitcoin remains off-putting to many still (and for good reason), and the relative stability of the USD is much more appealing to many in developing countries. Therefore, $USDC is one the best options that the U.S. currently has for maintaining the value of the dollar on a world stage.
In my humble opinion, we will not out China China when it comes to creating centrally controlled surveillance technology digital money. Plus, the concept of closed source CBDCs (Central Bank Digital Currencies) is too dystopian for my taste. To put this point in other words, do you want central banks to have even more control of your money and your access to money (or your ability to access money) than it does right now? I don’t. Therefore, I remain a proponent of $USDC. I fear that if $USDC doesn’t continue to proliferate, then non-USD backed algorithmic stablecoins like $UST, $DAI, and $MIM will fill the void. In doing so, this will likely make the U.S. Dollar less relevant and less important.
Great Interview
In other news, I highly recommend watching/listening to the following conversation between Glenn Greenwald, former Intercept journalist, and Alex Gladstein, the chief strategy officer at the Human Rights Foundation. I’m not sure whether Greenwald is actually so green (zing!) when it comes to Bitcoin, but he asks a number of good Bitcoin 101-type questions. Also, Gladstein talks in more depth about the role of Bitcoin in the “developing” world.
Great Twitter Follow
This guy below consistently pumps out great content filled with solid DeFi strategies. I, too, will discuss some DeFi strategies in an upcoming edition of the newsletter.
Lastly, Happy New Year, everyone! Here’s to wonderful year ahead!
Best,
Frank
Twitter: @frankcorva
Currently Reading: The Infinite Machine: How an Army of Crypto-Hackers Is Building the Next Internet with Ethereum, by Camilla Russo; Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies, by Nik Bhatia; and Man and His Symbols, by Carl Jung
Currently Watching: Cobra Kai (Season 4)