A long time ago I was a junior bond and FX trader, and a conversation I remember happening every few months during US Treasury Auctions was (paraphrasing)
I think that one thing US commentators always seem to miss in this particular use case is the on/off ramps. The government doesn't need to block the use of stablecoins, they can just cut the on ramps which run on the tradicional rails.
Very interesting - thanks for the writeup. Now here's a followup question: what happens if all existing tokens of a given stablecoin are bought up by savers in a country with capital controls - and then sold outside of it? For illustrative purposes, what happens if all outstanding USDC is bought by South African savers for the sole purpose of getting their money into a hard currency and out of the country, and then these savers proceed to exchange their USDC for USD once their money is out of South Africa and in a more stable jurisdiction?
It seems clear to me that this would exert pressure on the USD / USDC peg, because no rational seller would sell their USDC in South Africa for the same price they would sell their USDC outside South Africa. USDC should command a price premium in S. Africa because the seller exchanging their USDC for USD there would then have the problem of getting USD out of a country with capital controls... And indeed, for many cryptocurrencies, this is the case: they are more expensive in countries with capital controls than elsewhere.
My point is this: inasmuch as stablecoins fill a market gap for USD savings in developing countries, and especially in countries with capital controls, this same phenomenon would tend to threaten the peg - and make the stablecoins unstable.
I think that one thing US commentators always seem to miss in this particular use case is the on/off ramps. The government doesn't need to block the use of stablecoins, they can just cut the on ramps which run on the tradicional rails.
Very interesting - thanks for the writeup. Now here's a followup question: what happens if all existing tokens of a given stablecoin are bought up by savers in a country with capital controls - and then sold outside of it? For illustrative purposes, what happens if all outstanding USDC is bought by South African savers for the sole purpose of getting their money into a hard currency and out of the country, and then these savers proceed to exchange their USDC for USD once their money is out of South Africa and in a more stable jurisdiction?
It seems clear to me that this would exert pressure on the USD / USDC peg, because no rational seller would sell their USDC in South Africa for the same price they would sell their USDC outside South Africa. USDC should command a price premium in S. Africa because the seller exchanging their USDC for USD there would then have the problem of getting USD out of a country with capital controls... And indeed, for many cryptocurrencies, this is the case: they are more expensive in countries with capital controls than elsewhere.
My point is this: inasmuch as stablecoins fill a market gap for USD savings in developing countries, and especially in countries with capital controls, this same phenomenon would tend to threaten the peg - and make the stablecoins unstable.
How do you see this playing out?
Great write up, I hit on this seeming to happen briefly in my article I wrote last year:
https://7174.substack.com/p/the-fundamental-economic-value-of?utm_source=profile&utm_medium=reader2