The banking crisis has been good for Stablecoin experimentation

Who would have thought the US government would bail out stablecoins? Well, by sheer coincidence, this week when the US Treasury, Federal Reserve and FDIC announced plans to freeze all deposits at two failed banks, they also promised to secure at least 8% of the USDC stablecoin’s security. Circle, the stablecoin issuer, said it keeps about a quarter of USDC reserve assets with about six banks. What is the probability?

The bailout benefited Circle, which worked overtime last weekend while the USDC was decoupled from the US dollar. In a recent Bankless episode, Circle CEO Jeremy Allaire talked about the emergency measures they took, as well as the serious game theorizing Circle has been playing over the past two years to spread their cash and one day essentially make stablecoins “direct government obligations “money.”

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If you balk at the idea of ​​a crypto-based tool like stablecoins essentially acting as a “proxy” central bank digital currency (CBDC), as host Ryan Sean Adams suggested to make Allaire smile, then you’re probably not alone. Stablecoins can be the bridge between crypto and the real economy, but they should also retain some of the aspects that make crypto crypto, beyond 24-hour access and a different transaction settlement mechanism. Censorship resistance is virtually impossible if crypto nuzzles close to the banking system.

But why be so prescriptive? “Stablecoin” is an imperfect word to describe a whole range of blockchain-based assets that can have a variety of attributes and completely different mechanics. Aside from the promise of a fixed price, USDC has little in common with terraUSD, the stablecoin whose algorithm failed.

Indeed, in the wake of the recent banking crisis, there has been a wave of experimentation with stablecoins. Just today, a Bitcoin-based DeFi protocol introduced Sovryn Sovryn Dollar (DLLR) backed entirely by BTC. There have been similar experiments with stablecoins backed by gold.

Arthur Hayes, the former CEO of BitMEX, recently floated the idea of ​​Nakacoin, a stablecoin that would be issued by member crypto exchanges displaying the reverse bitcoin perpetual swaps that would back the asset.

I can’t vouch for any of the ideas behind these projects, but I can say in general that experimentation is good. The USDC showed the world this weekend that the idea of ​​issuing a dollar proxy backed by safe investments and cash stored in banks can be resilient even when a critical component fails. Tether, the company with a checkered past behind USDT, has not only grown despite being caught lying by New York State prosecutors, but is thriving.

But crypto will also offer alternatives to banks and finance. There are undoubtedly people who would prefer to take on the “protocol risk” of an all-on-chain stablecoin rather than the “platform risk” of a bank account stablecoin. But there I go again, prescriptive…