Author: Morgan Beller,Compiler: Block unicorn
Stablecoins are defense technology
This idea has been swirling in my mind since 2018. At the time, I was in Washington discussing Libra (Meta's, then Facebook's stablecoin project) with regulators. One of my personal motivations for supporting Libra was defense.
The basic idea is that the future of money will be more digital and less physical. Stablecoins, such as cryptocurrencies that are pegged to stable currencies such as the US dollar, are our best tool for digitizing the dollar. If we don't digitize the dollar, we risk losing its central position in the financial world. If that happens, we will lose a key pillar of American stability and leadership that most people probably take for granted now. If the US government doesn't recognize this soon, others will. So there is a defense angle.
If you are the founder of a stablecoin and you don't yet think of yourself as a defense technology company, reconsider. If you’re a regulator who’s been watching stablecoins and the role they’ll play in the dollar’s hegemony, wake up.
The time to act is now. Stablecoins are approaching a $150 billion market cap, and adoption continues to grow.
If we want to build stable infrastructure — not just for finance, but even for democracy (bear with me) — then we need to act fast.
With this…
Why Stablecoins Are Defense Technology
Let’s start with a quick historical review.
The U.S. dollar has been the world’s primary reserve currency since the end of World War II. This was decided at the Bretton Woods Conference in 1944, which led to the creation of the World Bank and the International Monetary Fund.
At the time, Europe’s great financial centers were still being rebuilt, and the United States took advantage of the opportunity to step up and consolidate the dollar’s central position in the post-war world economy.
The Bretton Woods system formalized everything by creating a system of exchange rates where other countries could measure the value of their currencies in dollars, which at the time were tied to the value of gold.
Of course, the dollar is no longer tied to the value of gold. But it still represents American power, stability, and geopolitical influence. So we will continue to move forward on the strength of this idea.
Being the world's reserve currency is not a right, but a privilege. It brings some financial advantages, such as not having to go through the conversion process when trading, or that we can borrow at lower interest rates (from another perspective, it makes it easier for us to impose sanctions on other countries).
But the real power is security. If the dollar collapses, it will have a huge impact on the entire world economy. Much of the world's monetary system is maintained because of American stability. This means that we are less likely to face targeted attacks, financial wars, hostile takeovers... or worse.
This is a fact that we even acknowledge in our own published National Security Strategy. International financial institutions are "force multipliers" for our values and interests.
And it’s also true that China is eager to change that.
Recently, China published a report on “American hegemony and its harms,” which included a section devoted to the hegemony of the dollar. One quote from that section is, “America’s economic and financial hegemony has become a geopolitical weapon.”
From our American perspective, the dollar is more of a shield than a weapon. Still, China’s use of that language is telling. There are many countries in the world that would love to be able to wield this world reserve currency status as a weapon.
It’s always been baffling to me why U.S. regulators still don’t see safe and reliable stablecoin projects as a (benign) Trojan horse for our continued dominance of the dollar. If you want to spread your currency across many secure exchanges through multiple stable assets, what better option than a stablecoin? It’s also free marketing for the dollar — a way to make those dollars instantly available to millions of people around the world who want them through a decentralized network.
If we don’t do something to protect the brand, others will try to use (or abuse) it.
The Good News
Despite our own problems, there is a lot of good news.
99% of stablecoin projects are currently pegged to the US dollar.
Ironically, it is perhaps for the best that we did not move quickly or even at all to digitize the dollar in a top-down manner. This gives us the opportunity to grow this ecosystem organically.
In the past, US hegemony was a push. But digital hegemony is more of a pull than a push. There is evidence that people want stablecoins — and entrepreneurs have built solutions. This is actually beautiful.
A diverse stablecoin ecosystem is exactly what we want to see. Not only for consumers, but also for national security. Many projects are pegged to the dollar, which means that the dollar is harder to overtake.
But we do need regulators to do one thing: clarify the rules of the game, which is actually very cheap. For example... trademarking the dollar.
Trademarking the dollar
Let's go back to Washington, DC in 2018. I remember being in a meeting with the Treasury Department and asking them if “USD” was trademarked. “Why are you asking that?” They asked like I was crazy.
If you think about it, there is no official definition of a true digital dollar, at least from the government’s perspective. That means that basically anyone can create a digital “dollar” — in other words, anyone can forge a dollar in 15 minutes. We could launch NFX-USD today, for example.
In the bigger picture, this means that China is not even obligated to make their RMB-based stablecoin a digital RMB. They can actually use the USD brand and associate it with their currency. Because no one is paying attention.
The U.S. government doesn’t need to build its own digital currency (which they have considered doing), they just need to clarify the rules of the game.
Trademarking USD starts with a definition of a government-backed U.S. digital dollar. It ends with a series of requirements that further facilitate the good guys by providing regulatory clarity for entrepreneurs. At the same time, it protects consumers from malicious actors.
Some suggestions for these requirements:
This effectively allows the government to outsource the construction, development, and maintenance of the dollar in the digital space to capitalism.
This would all be easy and beautiful if we had clear rules.
Calling out founders
I would be even more sleep deprived right now if it weren't for one thing. Every day, I meet more and more stablecoin founders. You are motivated, talented, and smart. You have the drive and the sharpness to see the problem for what it is.
In the U.S., we have a group of stablecoin founders who can step in and solve this problem for us, if we provide them with the necessary resources and support. Crypto-obsessed people like to focus on the market cap of individual coins, but this is a team sport, folks.
Stablecoins will enable a digital expansion of the dollar, both technically and organizationally. We have a decentralized team of founders, not to mention the decentralized nature of crypto, all in our favor. If we give these networks everything they need to thrive, it will be an elegant solution driven by the American Dream.
I hope all stablecoin founders realize this, if you don’t already. Your work is about national defense, and even democracy.
Miyuki
Brian
Weiliang
Anais
Alex