Stablecoins Are Not Your Friends

Stablecoins are often pitched as a stopgap method, or a friendly tool for people in the developing world who cannot handle the volatility of Bitcoin. They are framed as something complementary to Bitcoin, not in competition with it. Nothing could be further from the truth.

Bitcoiners have commonly used the meme of a trojan horse to justify many things over the years, rationalizing many shortcomings and compromises made over time as what is necessary to sneak Bitcoin into the legacy system to ultimately take over and win. That is exactly what stablecoins are, except in the reverse direction.

Stablecoins are the trojan horse into Bitcoin.

Bitcoin’s volatility makes using it challenging if you do not have the net worth to weather it, but there are mechanisms to handle this. Centralized schemes like Stablesats by Blink have been built to use bitcoin collateral to lock in a dollar value without needing to actually hold dollars. Discreet Log Contracts (DLCs) offer another mechanism for accomplishing the same thing in a decentralized fashion.

Instead we are propping up the US Dollar. Stablecoins are a solution to volatility, but they are a non-Bitcoin native one. They are the US Treasury’s trojan horse into the Bitcoin space. They do more to control and prop up the dollar than they do to “help” Bitcoiners handle the issue of volatility, which can be done while only holding bitcoin.

Stablecoins give the Treasury a new lifeline to sell treasury bonds. Foreign countries have lowered demand and sold existing treasuries for some years now, and stablecoin issuers have stepped up to pick up the slack. The bigger demand grows for stablecoins, the more of a drop in foreign government demand for treasury bonds the US Government can handle. At a time where BRICS is planning more and more to shift away from their dependence on the US dollar, stablecoins represent a vehicle to ameliorate this issue.

They also, unlike Bitcoin native solutions such as DLCs, present a security risk to holders. To my knowledge, aside from the Liquid Network, every network stablecoins are issued on come with a seize and freeze functionality built into the smart contract the issuer uses to create them. Almost all stablecoins support the arbitrary freezing and seizure of users balances on the different networks they circulate on.

Surveillance is another aspect of stablecoin proliferation. The more that dollar stablecoins are adopted around the world, without needing to politically convince any government to officially dollarize I might add, the more the US Government’s ability to directly surveil foreign financial activity expands. Chainalysis and other companies become a de facto government surveillance system for foreign financial activity, with no need to subpoena or gather records first. It’s all right there on the blockchain.

All the while, it propagates the idea that “blockchain” is a useful technology disconnected from Bitcoin, pushing the idea to your average person that bitcoin is simply an asset like gold to invest in. It creates a psychological narrative of “invest in Bitcoin, use your surveillance money when you need to spend.”

Overall stablecoins are going to be one of the most epic unforced errors that have occurred in this entire ecosystem. People need to wake up before it becomes embedded so deeply into their lives, and the financial world in general, that it becomes difficult to disentangle ourselves from.

People should be spreading and building on Bitcoin, a money built to enable freedom and sovereignty, not these cheap imitations called stablecoins that are nothing more than an extension of the surveillance and tyranny of the legacy financial system. 

This article is a Take. Opinions expressed are entirely the author’s and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.

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