We ask the wrong questions about stable coins

The author is a legal professor at the American University Washington College of Law

After the breakdown of one of the largest so -called stable coins in the world, people ask the wrong questions.

stable coins are advertised as the safer part of the cryptoma market, which is designed to keep a constant value per coin coin of $ 1. However, it did not go that way for the recently battered terrace.

His dramatic failure has raised questions about which types of stable coins are most stable and which guardrails are required to protect users. However, these are not the questions we should ask. The actual question is: "Should there be stablecoins at all?"

Yes, Terrausd had a fragile structure than some other stable coins. It was a so -called "algorithmic" stable coin that tried to maintain a value of $ 1 with a complex relationship with a paired cryptocurrency, luna. Last week the value of terrausd crashed to less than 10 cents because the demand for both collapsed.

The peculiarities of Terrausd do not mean that other forms of stable coins are actually stable or that there is a place for stable coins in our financial system.

We often hear that stable coins are the future of payment transactions, but they are not really used to pay for real goods and services. We are told by supporters that "it is still in its infancy", but what could stablecoins ever do that non-blockchain-based payment solutions couldn't do better?

The blockchain technology must contain wasteful calculations to ward off attacks, so it cannot be scaled well. In addition, blockchains can be added, but not deleted, which prevents the reversal of incorrect or fraudulent transactions. It is difficult to imagine how blockchain payments could ever be faster or more efficient than more centralized alternatives.

crypto lobbyists may say that these technological restrictions are worthwhile because they get rid of centralized intermediaries. In reality, however, crypto is full of intermediaries. The largest stable coins, Tether and USDC, are both issued by centralized agents. Terrausd claimed to be decentralized, but when things began to unravel, the owners looked at the Twitter-Feed from co-founder I clearly said.

and we do not forget that most users will be relying on a stock exchange to buy stable coins or to convert them again in Fiat currency, such as the Bitfinex and Coinbase exchanges connected to Tether or USDC. (The largest stable coins are associated with the largest stock exchanges that benefit from the associated transaction fees).

All in all, stable coins begin with complicated and inefficient basic technology to avoid intermediaries, and then add mediators (often with obvious conflicts of interest).

And then there are the negative effects on those of us who do not even use stable coins: the environmental costs of blockchain transactions; Ransomware attacks; And the risk of future financial instability caused by stablecoin runs if the sector continues to grow.

In view of these basic defects, the question arises: "Which guardrails should we put around stable coins?" is the wrong question. As we have learned from experiences with bank deposits and money market funds, the only really effective way to prevent runs and make stable coins stable is to store a state guarantee. It seems to be a really terrible idea to guarantee something that has no real application, except for facilitating crypto speculations.

An option that should be on the table is the ban on stable coins. We already do this with other dangerous products, but so far we have not really been part of this debate. Perhaps this is because people believe the decentralization hype and think that there is no way to do this. But in view of the brokered stablecoins are actually , there are many points through which a ban could be enforced.

Centralized intermediaries could be prohibited from issuing stable coins, and centralized stock exchanges could be prohibited from trading with them. As for the more decentralized stablecoins and stock exchanges out there, they are typically operated by "decentralized autonomous organizations" or "Daos", which act on the basis of voices that are given by those who keep governance tokens in them.

The authorities could prohibit everyone to keep governance tokens in a DAO that spends or provides services related to a stable coin. At the moment, these governance tokens tend to concentrate in the hands of founders and risk capital companies. Without VC financing there is a good chance that stable coins would disappear-and that we would all be much better off.