Reading Nikou Asgard’s piece on the stablecoin boom (Report, September 5), with its subheading “Rush prompts critics to warn that tokens are a ‘novelty’ bet with little use beyond trading”, I was reminded of what was said about the south sea adventure of 1720 — that it was “an undertaking of great advantage, but nobody knows what it is”.
Yes, the article does point to some advantages of stablecoins, especially cutting cross-border transaction costs as bank fees are eliminated, and with the associated advantage that dollar-backed stablecoins are more stable in value than are the currencies of many countries such as Argentina and Brazil.
But as the article points out, profit made by stablecoin issuers mainly comes from the interest they earn on the US Treasury securities they hold as stablecoin backing. To the extent that stablecoin holders could instead have held those securities, there is a transfer of interest income from them to the stablecoin issuers.
The article emphasises that the main use of stablecoins is to enable transactions in cryptocurrencies rather than for “real world” uses. If the claim that an asset has use value “but nobody knows what it is” applies to anything, it applies to cryptocurrencies. Cryptos are not a good store of value — look at their price volatilities. And they have vanishingly small usage as units of account or mediums of exchange.
The brilliance of the inventor of crypto was to call it “cryptocurrency”, apparently fooling so many people and financial institutions into thinking it is indeed “money” as money is widely understood to be.
If instead they had called their blockchain invention “cryptogiraffes”, financial markets would be free of this instrument that so far has only speculative uses.
At least when betting on horseracing the “investors” get to see the horses run.
Paul Hallwood
Professor of Economics
University of Connecticut
Storrs, CT, US
