Money Different

Permissionless asset-backed stablecoins unshackle prosperity.

The dollar’s dominance is fracturing and a new era of stable currency is underway.

The consensus understanding of stable money is stuck in the industrial age, as we have been conditioned to believe that fiat currencies like the US dollar are stable despite their decreasing purchasing power over time. The system is not very fast, nor transparent, nor even fully backed by assets. It’s shortcomings also provide the ideal conditions for a banking system that repeatedly shortchanges its stakeholders, JP Morgan 2013, Wells Fargo 2020, SVB 2023.

The dollar’s foundation has been weakened over the past 50 years as the US government has issued over $31 trillion in new debt and another $39 billion just four months into 2023.

According to the Bureau of Labor Statistics, the dollar has lost 87% of its purchasing power between 1970 and 2023.

It’s difficult to imagine the incumbent paradigm is perishable but throughout history, empire currencies have been short lived. For example, the Roman Denarius (3rd century BCE), the Dutch Guilder (17th century) and the British Pound Sterling (19th century), all experienced a similar rise and fall. In his book “The Changing World Order: Why Nations Succeed and Fail,” Ray Dalio discusses the evolution of eight reserve currencies throughout history, each going through birth, golden age, and decline. It’s impossible to predict what monetary systems will look like 50 years from now, or even 10 years from now, but what is predictable, is change.

“potential to make fractional banking whole again”

A new financial system is emerging that utilizes transparent smart contracts to replace intermediaries. This system has the potential to make fractional banking whole again and with reduced barriers to access and auditable proof of reserves available 24/7. Furthermore, there is a strong possibility that this system could be resistant to political fumbling.

The catalyst for this new era takes inspiration from America’s core values and the possibilities of free markets. “Markets are better than governments at picking winners and losers. Innovation requires running experiments, and not all will succeed”, Peter Thiel once said. Commitment to free markets and innovation has led to transformative advancements in transportation and communication, including automobiles, airplanes, and the internet. Why stop there?

By being open to experimentation and innovation in stablecoins, we can bring money into the digital age and transform the world once again. We stand at a chasm between the industrial age of an incumbent money system and the dawn of digital money that has not yet had its broadband moment. This is the AOL era for stablecoins, and the potential for change is immense.

It’s already happening, in just the few early months of 2023, protocols and entrepreneurs have launched several new decentralized asset-backed currencies.

High Yield USD (hyUSD) is a secure high yield savings dollar with up to 8% APY expected to outpace the rate of inflation in over 100 countries around the world. ETHPlus (ETH+) is a safety-first diversified ETH staking index with up to 4.5% APY. Electronic Dollar (eUSD) is an anti-fragile stablecoin built to endure black swan events, recently proving itself during the run on Silicon Valley Bank.

All three asset-backed currencies have launched utilizing the permissionless Reserve Protocol on the Ethereum blockchain, we call them “RTokens.”

RTokens are always 1:1 asset-backed and facilitated through smart contracts, allowing for permissionless minting and redeeming on-chain by users without the need for any middlemen. RTokens also introduce revenue sharing and an emphasis on safety with overcollateralization and auditable proof of reserves on-chain 24/7. Each RToken can have an entirely different governance system and is governed separately by RSR stakers.

The first RToken, eUSD, was recently stress-tested with inclusion of USDC in it’s asset-backing basket at the time of the run on Silicon Valley Bank. Circle’s USDC reserves were held at the bank, which led to USDC depegging from $1 down to 88 cents. Through eUSD’s decentralized ‘self-healing’ capability, eUSD was able to autonomously recapitalize and return to $1 peg without the need for regulator or bank backstops.

hyUSD, ETH+ and eUSD enable DAOs and funds to improve capital allocation and risk management. eUSD has already been adopted in the MOBY app to send borderless, end-to-end encrypted money in under 5 seconds for quarter-penny fees; much better than $20 fees on remittances that can take several days. eUSD has also been adopted by the RPay app in Latin America, which was recently celebrated in a 2023 IMF Working Paper for helping users preserve savings and protect livelihoods from volatility due to hyperinflation.

“RTokens improve capital allocation and risk management”

Arguably, the most significant impact of decentralized and permissionless asset-backed currency is the unleashing of creativity and prosperity that no monopoly ever could.

In the nascent stages of innovations like automobiles, airplanes, and the internet, skeptics expressed doubts about their demand and safety. However, entrepreneurial ingenuity ultimately led to the development of electric vehicles, the creation of billions of webpages by millions of content creators and it’s increasingly likely that humans will become a multi-planetary species this century.

Shopify, Apple, and YouTube have demonstrated the potential of more open platforms as they acquire network effects, expand options, and reduce usage costs. These impacts foster a shift towards products and services that closely align with individuals’ preferences and identity, leading to massive category expansion. The potential might not have been immediately evident, but the launch of Shopify in 2004 eventually attracted a million merchants, the App Store’s introduction in 2008 preceded the proliferation of two million apps, and YouTube’s inception in 2005 eventually gave rise to an astonishing 37 million channels. Truly permissionless platforms in web3, as we are already seeing with ERC-20 tokens, will take this many steps further.

Markets do not need a currency monopoly any more than they need one telco to control the internet. What the markets increasingly seek is enhanced stability, speed, and transparency, which often conflict with the presence of rent seeking middlemen. Small permissionless experiments can lead to big impacts and we are on the cusp of another do or die moment, to participate in, or surrender the next revolution.

If you would like to learn more about improved capital allocation and risk management with RTokens, or to deploy your own RToken, visit Register.app or drop into the Reserve Discord for support.