In the dynamic landscape of digital currencies, the quest for a stablecoin that not only pegs to the U.S. dollar but also enhances economic growth has gained prominence. Attorney Daniel Wheeler puts forth a compelling argument, proposing a unique stablecoin backed solely by cash in a bank. This concept, if realized, could potentially expand the money supply without triggering inflation, while simultaneously fostering improvements in the banking sector. In this exploration, we’ll unravel the potential benefits and distinctive features of a true stablecoin.
The Vision for a U.S. Dollar Pegged Stablecoin:
Wheeler’s proposal centers around a stablecoin pegged to the U.S. dollar, distinguishing itself by being solely backed by cash in a bank. The fundamental idea is to not only increase the money supply safely but to contribute to its enhancement. This envisioned stablecoin could play a dual role in the economy, acting as a swift and cost-effective means of transaction and concurrently serving as a catalyst for reducing the borrowing costs of USD.
Splitting the Money Supply:
The proposed stablecoin introduces an innovative approach to managing the money supply. Dividing it into two components, the pegged stablecoin becomes the instrument for seamless transactions, offering speed and efficiency. On the other hand, the U.S. dollars held in bank accounts serve the purpose of lowering borrowing costs for USD. This bifurcation presents a novel way to address economic needs by leveraging the strengths of both components.
Critical Attributes of a Beneficial Stablecoin:
Wheeler emphasizes that for a stablecoin to yield economic benefits, it must adhere to specific attributes. Any stablecoin promising “yield,” “earnings,” or “dividends” is likely considered a security, triggering capital gains tax upon transactions. The key lies in structuring the stablecoin to avoid such pitfalls, with a focus on strict limitations to assets, ensuring they are solely composed of U.S. dollars in a bank account.
Addressing Flaws in Existing Stablecoins:
The analysis delves into existing stablecoins, including Tether, highlighting potential deficiencies. Notably, stablecoins that deviate from being strictly backed by U.S. dollars in a bank account introduce a severe vulnerability – the risk of a “run on the bank.” The dependency on events like a “black swan” not occurring raises concerns about the stability of such stablecoins.
Defining a True Stablecoin:
A true stablecoin, as envisioned by Wheeler, maintains a fixed value of $1, eliminating the need for speculative “hodling.” It operates as a high-velocity transactional currency, offering speed and ease in transactions without the expectation of yield or appreciation. The stability of such a coin ensures reliability for users, paving the way for broader adoption and utility.
Potential Economic Benefits:
The proposed stablecoin model aligns with the belief that stablecoins, with their transactional advantages, can drive demand and profitability for issuers. By retaining the fiat currency yield from custodian banks, stablecoin sponsors could operate profitably. Simultaneously, the stablecoin’s unique role as transactional currency separates it from chasing the same goods and services as fiat currency, thereby avoiding direct competition.
Advantages Over Central Bank Digital Currencies (CBDCs):
In contrast to central bank digital currencies (CBDCs), Wheeler’s stablecoin concept stands out. It seamlessly integrates with existing legal frameworks, avoids detrimental impacts on the banking system, and prevents the government from leveraging currency as a tool for surveillance and control. This distinction positions the stablecoin as a viable and advantageous alternative to CBDCs.
The vision for a true stablecoin, pegged to the U.S. dollar and backed solely by cash in a bank, holds the potential to reshape the landscape of digital currencies. By addressing existing flaws in stablecoin models and introducing innovative economic benefits, Wheeler’s proposal sparks meaningful discussions on the future of stablecoins and their role in enhancing both banking and the broader crypto ecosystem. As the industry explores new avenues, the prospect of a true stablecoin opens doors to novel possibilities for a more efficient and robust financial future.
