Stablecoins follow a historical trajectory similar to that of the banking industry.

Written by: Sam Broner, Partner at a16z crypto

Translated by: Luffy, Foresight News

Stablecoins have been used by millions, with trading volumes reaching trillions of dollars. However, the definition of this asset and people's understanding of it remain quite vague.

Stablecoins are a medium of value storage and exchange, typically (but not necessarily) pegged to the US dollar. They are described using two core dimensions: under-collateralization vs. over-collateralization, and centralization vs. decentralization. This helps in understanding the relationship between the technological structure of stablecoins and their risks, as well as dispelling misconceptions about them. Based on this framework, I will provide another useful way of thinking.

If we want to understand the richness and limitations of stablecoin design, a useful perspective is the history of banking: what works, what doesn’t, and why. Like many crypto products, stablecoins may accelerate the evolution of banking, starting with simple cash and then expanding the money supply through increasingly complex lending.

First, I will introduce the current state of stablecoins, then take you through some history of banking to enable a useful comparison between stablecoins and the banking industry. Stablecoins offer users many experiences similar to bank deposits and banknotes: convenient and reliable value storage, exchange medium, and lending; the difference is that stablecoin users can choose a "self-custody" form. In this process, I will evaluate three types of tokens: fiat-backed stablecoins, asset-backed stablecoins, and strategy-backed synthetic dollars.

Current State of Stablecoins

Since the launch of USDC in 2018, there has been enough evidence to indicate which stablecoins work and which do not, so it is time to clearly define this landscape. Early adopters primarily used fiat-backed stablecoins for transfers and savings. Stablecoins generated by decentralized over-collateralized lending protocols are both useful and reliable, but demand has been moderate. So far, consumers seem to strongly prefer dollar-pegged stablecoins over other fiat stablecoins.

Certain categories of stablecoins have completely failed. Decentralized, under-collateralized stablecoins are more capital-efficient than fiat-backed or over-collateralized stablecoins, but the most notable example (Luna) ended in disaster. Other categories of stablecoins have yet to materialize, such as yield-bearing stablecoins, which sound exciting—who doesn’t like yield? But they face user experience and regulatory hurdles.

With the successful product-market fit of stablecoins, other types of dollar-pegged tokens have also emerged. Strategy-backed synthetic dollars (which will be detailed below) represent a new product category that has not yet been properly described; they are similar to stablecoins but have not actually met the important standards of safety and maturity.

We have also witnessed the rapid adoption of fiat-backed stablecoins, which are popular due to their simplicity and perceived safety. The adoption of asset-backed stablecoins has lagged, but they occupy the largest share of deposit inflows. Analyzing stablecoins through the lens of the traditional banking system helps to understand these trends.

The History of Bank Deposits and US Currency

To understand how contemporary stablecoins mimic the banking system, one must first grasp the history of American banking. Before the Federal Reserve Act (1913), especially before the National Banking Act (1863), the status of different types of dollars was not equal. The US experienced three eras before national currency: the central banking era (First Bank 1791-1811 and Second Bank 1816-1836), the free banking era (1837-1863), and the national banking era (1863-1913).

Before the establishment of the Federal Deposit Insurance Corporation (FDIC) in 1933, deposits had to be specifically insured against bank risk. The "real" value of banknotes (cash), deposits, and checks could vary significantly based on three factors: the issuer, the ease of redemption, and the issuer's credibility.

Why is that? Because banks have always faced the contradiction between making money and ensuring the safety of deposits.

To make money, banks need to invest deposits and take on risks, but to ensure the safety of deposits, banks need to manage risks and hold cash. Before the late 19th century, different forms of currency were perceived to have different risk levels, thus having different real values. It was only after the Federal Reserve Act of 1913 that one dollar became one dollar.

Today, banks use dollar deposits to purchase government bonds and stocks, issue loans, and engage in simple activities like market-making or hedging under the Volcker Rule. The Volcker Rule was introduced in 2008 to reduce bankruptcy risk by curbing speculation by retail banks. Lending is a particularly important part of banking operations and a way for banks to increase the money supply and economic capital efficiency.

While retail banking customers may think all their money is in deposit accounts, that is not the case. However, due to federal oversight, consumer protection, widespread adoption, and improved risk management, consumers can view deposits as a relatively risk-free unified balance. Banks balance making money and managing risk behind the scenes, and users are largely unaware of how banks handle their deposits, even in turbulent times, they can generally be assured of the safety of their deposits.

Stablecoins provide users with many experiences similar to bank deposits and cash: convenient and reliable value storage, exchange medium, and lending, with the difference being that stablecoin users can choose a "self-custody" form. Stablecoins will develop along the path of fiat currency. Adoption starts with simple cash, but as decentralized lending protocols mature, asset-backed stablecoins will become increasingly popular.

Evaluating Stablecoins from the Perspective of Bank Deposits

Having understood the history of banking, we can assess three types of stablecoins from the banking perspective: fiat-backed stablecoins, asset-backed stablecoins, and strategy-backed synthetic dollars.

Fiat-Backed Stablecoins

Fiat-backed stablecoins are similar to banknotes from the era of national banks in the US (1865-1913). During this period, banknotes were bearer instruments issued by banks; federal regulations stipulated that customers could redeem them for an equivalent amount of dollars. Therefore, while the value of banknotes might vary based on the issuer's reputation and solvency, most people trusted banknotes.

Fiat-backed stablecoins follow the same principle. They are tokens that users can directly redeem for easily understood, trustworthy fiat currency; but they also carry similar risks: while cash is a bearer instrument that anyone can redeem, the holder may not live near the issuing bank. Over time, people accepted the fact that they could find someone to trade with and then redeem their cash for dollars. Similarly, users of fiat-backed stablecoins are increasingly confident that they can reliably find someone who accepts the value of this token using Uniswap, Coinbase, or other exchanges.

Today, a combination of regulatory pressure and user preference seems to be attracting more users to fiat-backed stablecoins, which account for over 94% of the total supply of stablecoins. Circle and Tether dominate the issuance of fiat-backed stablecoins, having issued over $150 billion in stablecoins.

But why should users trust the issuers of fiat-backed stablecoins? After all, fiat-backed stablecoins are centrally issued, and it is not hard to imagine a "run" occurring during redemption. To address these risks, it is best for fiat-backed stablecoins to undergo audits by reputable accounting firms. For example, Circle regularly undergoes audits by Deloitte. These audits aim to ensure that the stablecoin issuer has sufficient fiat currency or short-term treasury bill reserves to cover short-term redemptions and that the issuer has enough assets to support each issued stablecoin on a 1:1 basis.

Verifiable reserve proof and decentralized issuance of fiat-backed stablecoins are feasible methods but have not yet been implemented. Verifiable reserve proof would enhance auditability and can currently be achieved through zkTLS (zero-knowledge transport layer security, also known as network proof) and similar methods, although it still relies on trusted centralized entities. Decentralized issuance of fiat-backed stablecoins may be feasible, but there are significant regulatory issues. For instance, to issue decentralized fiat-backed stablecoins, the issuer would need to hold US Treasury bonds on-chain that have a risk profile similar to traditional government bonds. This is not currently possible, but it would make it easier for users to trust fiat-backed stablecoins.

Asset-Backed Stablecoins

Asset-backed stablecoins are a product of on-chain lending, mimicking how banks create new money through loans. Decentralized over-collateralized lending protocols like Sky Protocol (formerly MakerDAO) issue stablecoins like DAI, which are backed by highly liquid collateral on-chain.

We can envision a checking account to help understand how this type of stablecoin works. The funds in a checking account are part of a complex system of lending, regulation, and risk management that creates new money. In fact, most of the money in circulation, known as the M2 money supply, is created by banks through lending. Banks create money using mortgages, auto loans, commercial loans, inventory financing, etc., while lending protocols use on-chain assets as collateral, thereby creating asset-backed stablecoins.

The system that allows loans to create new money is called the fractional reserve banking system, which truly originated with the Federal Reserve Act of 1913. Since then, the fractional reserve banking system has matured significantly and has undergone major updates in 1933 (the establishment of the FDIC), 1971 (when President Nixon ended the gold standard), and 2020 (when the reserve requirement was lowered to zero).

With each transformation, consumers and regulators have become increasingly confident in the system of creating new money through lending. For over 110 years, the proportion of lending in the US money supply has been steadily increasing and now constitutes the vast majority.

Consumers do not consider all these loans behind the scenes when using dollars, and there are good reasons for that. First, bank deposits are protected by federal deposit insurance; second, despite major crises like those in 1929 and 2008, banks and regulators have been steadily improving strategies and processes to reduce risk.

Traditional financial institutions employ three methods to safely issue loans:

• Only support assets with liquid markets and rapid settlement practices (margin loans)
• Conduct large-scale statistical analysis on a group of loans (mortgages)
• Provide comprehensive and tailored underwriting services (commercial loans)

Decentralized lending protocols still account for only a small portion of the stablecoin supply; they are just getting started.

The most well-known decentralized over-collateralized lending protocols are transparent and well-tested. For example, Sky only issues stablecoins against on-chain, low-volatility, and high-liquidity assets. Sky also has strict regulations regarding collateral ratios and effective governance and auction protocols. These attributes ensure that even if conditions change, the collateral can be safely sold, thereby protecting the value of asset-backed stablecoins.

Users can evaluate on-chain collateral lending protocols based on four criteria:

• Governance transparency
• The proportion, quality, and volatility of the assets supporting the stablecoin
• The security of smart contracts
• The ability to maintain loan collateral ratios in real-time

Like the funds in a checking account, asset-backed stablecoins are new money created through asset-backed loans, but their lending practices are more transparent, auditable, and easier to understand. Users can audit the collateral of asset-backed stablecoins; however, with deposits, they can only entrust investment decisions to bank executives.

In addition, the decentralization and transparency achieved by blockchain can mitigate the risks that securities laws aim to address. This is important for stablecoins, as it means that truly decentralized asset-backed stablecoins may fall outside the scope of securities laws.

As more economic activity shifts on-chain, two scenarios are expected to emerge: first, more assets will become candidates for collateral used in lending protocols; second, asset-backed stablecoins will expand their market share. Other types of loans may eventually be safely issued on-chain to further increase the on-chain money supply. That said, just because users can evaluate asset-backed stablecoins does not mean that every user is willing to take on that responsibility.

Just as the growth of traditional bank loans, the reduction of reserve requirements by regulators, and the maturation of lending practices take time, the maturation of on-chain lending protocols will also require time. Therefore, it will take a while before more people can use asset-backed stablecoins for transactions as easily as they do with fiat-backed stablecoins.

Strategy-Backed Synthetic Dollars

Recently, some projects have launched tokens with a face value of $1, representing a combination of collateral and investment strategies. These tokens are often conflated with stablecoins, but strategy-backed synthetic dollars should not be viewed as stablecoins. Here’s why.

Strategy-backed synthetic dollars (SBSD) expose users directly to the risks of actively managed trading. They are typically centralized, under-collateralized tokens that come with financial derivatives. More accurately, SBSD are dollar shares in open-ended hedge funds. This structure is both difficult to audit and may expose users to centralized risks and asset price volatility risks, such as during significant market fluctuations or prolonged downturns.

These attributes make SBSD unsuitable as reliable stores of value or mediums of exchange, which are the primary uses of stablecoins. While SBSD can be constructed in various ways, with differing levels of risk and stability, they all provide dollar-denominated financial products that people wish to include in their portfolios.

SBSD can be built on many strategies. For example, foundational trading or participation in yield protocols, such as those that help ensure the re-staking of Active Verification Services (AVS). These projects manage risks and returns, often allowing users to earn yields based on cash positions. By managing risks through yields, including evaluating AVS to mitigate risks, seeking higher yield opportunities, or monitoring reversals in foundational trading, projects can generate yield SBSD.

Users should thoroughly understand the risks and mechanisms of any SBSD before using them. DeFi users should also consider the implications of using SBSD in DeFi strategies, as decoupling can lead to severe cascading effects. When an asset decouples or suddenly depreciates relative to its tracked asset, derivatives that rely on price stability and stable yields may suddenly fail. However, when strategies include centralized, closed-source, or unauditable components, underwriting the risks of any given strategy can be difficult or impossible. You must know what you are underwriting.

While banks do implement simple strategies for deposits, these strategies are actively managed and only account for a small portion of overall capital allocation. It is challenging to use these strategies to support stablecoins because they must be actively managed, making it difficult for these strategies to be reliably decentralized or auditable. SBSD users face greater centralized risks than bank deposits. If users' deposits are held in such tools, they have reason to be skeptical.

In fact, users have been cautious about SBSD. Although SBSD is popular among users with a higher risk appetite, few users trade with them. Additionally, the U.S. Securities and Exchange Commission has taken enforcement actions against issuers of "stablecoins" that function similarly to investment fund shares.

Summary

The era of stablecoins has arrived. The global market capitalization of stablecoins has exceeded $160 billion, divided into two main categories: fiat-backed stablecoins and asset-backed stablecoins. Other dollar-pegged tokens, such as strategy-backed synthetic dollars, have gained recognition but do not meet the definition of stablecoins suitable for trading or storing value.

The history of banking provides a good perspective for understanding this category. Stablecoins must first be integrated around a clear, understandable, and easily redeemable currency, similar to how Federal Reserve notes captured mindshare in the 19th and early 20th centuries. Over time, we expect the number of asset-backed stablecoins issued by decentralized over-collateralized lenders to increase, just as banks increased the M2 money supply through lending. Ultimately, we believe that DeFi will continue to evolve, leading to the emergence of more SBSD, as well as an increase in the quality and quantity of asset-backed stablecoins.

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。