0. Intro
Stablecoins and stablechannels are a bad idea for four reasons:
  1. Compared to bitcoin, they all require extra trusted third parties (i.e. security holes)
  2. As a store of value, they're worse than btc due to the constant depreciation of the fiat they emulate
  3. As a medium of exchange, they are no better than btc because they face the same limitations
  4. As a unit of account, they are no better than btc because this is a solved problem
1. Extra trusted third parties
The most popular stablecoins are effectively banks that issue bearer bonds. Depositors send real money or cryptocurrency to Tether or Circle or whoever, and they swap it for government bonds or cash, and then print an equivalent amount of USDT or USDC, which they give to the depositors in return. The recipients begin circulating these in the economy, and sometimes redeem them at the issuer for their face value in USD or other fiat currencies. The issuer is the trusted third party. They can freeze your assets, refuse to redeem them, go bankrupt and disappear, or require KYC on every transfer.
Stablechannels are partially algorithmic. You deposit bitcoin in a lightning node, find a counterparty who is willing to take on a "contract for difference" with you, and you begin paying them money if bitcoin's price rises, or they pay you if bitcoin's price falls. The point is to ensure that whatever amount you deposited is still worth that amount whenever you send it, receive more of it, or close out your position. And if either counterparty fails to pay when required, the channel force closes, which is typically more expensive than if you just kept up your end of the bargain. The trusted third party here is the source of price info. A set of price oracles report the price of bitcoin, which determines whether your device sends money or your counterparty does that. A malicious counterparty can collude with these price oracles to always report that your device should send them money, and thus drain your wallet while you sleep.
Bitcoin is better money than stablecoins and stablechannels because it has fewer trusted third parties. Bitcoin doesn't need banks and it doesn't need oracles. There are fewer people at the protocol level who can pull the rug out from under you and that makes bitcoin safer, better money.
2. Store of value
Stablecoins and stablechannels are pegged to fiat currencies. Fiat currencies typically have a built-in, intentional depreciation target of about 2% per year, and whenever the issuer feels like money is tight, they can (and often do) simply raise that target, announce that they did so due to economic necessity, and then print more for themselves. This steals value from anyone who holds that fiat currency, and also from anyone who holds money in a stablecoin or a stablechannel pegged to that currency.
Some might argue that stablecoins are a better store of value than bitcoin anyway because they are less volatile. But a cursory examination of any comparison chart reveals that bitcoin's volatility trends upward and that fiat currencies, while somewhat less volatile, are by no means immune from volatility. Their volatility is just more patchy, and trends downward instead of upward. So bitcoin beats stablecoins and stablechannels on overall store of value, and it's not as disparate a match on volatility as some people make it out to be. Patience heals the volatility wound.
3. Medium of exchange
Bitcoin and stablecoins and stablechannels are all built on the same technologies. When users go to use them at stores, they face the same limitations: the payment might get stuck in a pending state; the payment might fail altogether, if it uses lightning; the transaction fees might be expensive; and the shop might not have a compatible wallet. Stablecoins and stablechannels don't offer anything that fundamentally fixes these issues.
Some might say stablechannels do, since they use lightning, but all of the above things still apply: lightning payments can get stuck too, or fail, or be expensive, or be unrecognizable to the recipient's device. Some might say stablecoins on tron, solana, or ethereum L2s fundamentally fix this, but they have the same problems: tron and solana and ethereum L2 payments sometimes get stuck, fail, have high fees, and aren't supported by all wallets.
The same problems afflict all options, bitcoin and stablecoins and stablechannels. It is unwise to divide efforts by trying to increase adoption of stablecoins or stablechannels while fixing the same problems on disparate platforms. It is wise to push for adoption of bitcoin directly as the best money while aligning all available efforts to fix problems on bitcoin.
4. Unit of account
The unit of account problem was solved by technology. Point of sale devices can easily obtain the price of any currency or cryptocurrency and show an invoice or address to the users for the equivalent price of whatever they are buying. Users typically have devices that also tell them what amount is being asked of them in whatever currency they like best, and if they opt for "advanced" wallets that don't convert to fiat terms, then they are probably sophisticated enough to just look at the amount and intuit whether it looks about right.
Some might say "but it's easier to denominate in stablecoins than BTC because bitcoin's price changes more frequently/quickly than stablecoins do." But "denominating in stablecoins" is actually just a proxy for denominating in fiat, because stablecoins are just a proxy for fiat. And more importantly, this is only true for some currencies some of the time. Argentinian pesos and Venezuelan bolivars are two of the most recent monetary units to collapse, leading to many people in those countries refusing to use them as a unit of account. Nothing stops the same thing from happening to the dollar, or the euro, or even to bitcoin.
But technology has made this part pointless. Whichever currency or cryptocurrency you use, your point of sale device can figure out the appropriate exchange rate when the customer approaches you to buy something. Thanks to digital devices, the unit of account problem is no longer a problem. So stablecoins and stablechannels don't beat bitcoin on this front either.
5. Conclusion
Stablecoins and stablechannels are worse money than bitcoin in four important categories. Those who push for their adoption stand in the way of hyperbitcoinization. Some folks think they are pushing for bitcoin adoption, but when it comes to merchants, they recommend they use a stablecoin or a stablechannel wallet like Strike or Boardwalk Cash. I recommend they use bitcoin. It is better money anyway, and the point of all this is to help the world use a better money, not just make it so your wallet works at a few more places.
As a store of value, they're worse than btc
No, they're different. They're a better short term value for people who need to store fiat. That's a perfectly valid use case.
Like it or not, a lot of people have fiat-denominated obligations that they need to be able to reliably pay. The volatility of BTC relative to their fiat currencies is expensive to deal with.
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Exactly. Peter is right.
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You do mean to simply say, people need FIAT sometimes and not that there's any purpose for stablecoins whatsoever right?
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No, they're different
Interesting comment. When two things compete in the same category ("store of value"), they are either equal, or one is worse. I say stablecoins are worse in this category. You say "No." I am surprised.
They're a better short term value for people who need to store fiat.
I do not admit the existence of people who "need" to store fiat. If they exist, blockchains and lightning channels are a worse place to do that than other systems like sql databases
a lot of people have fiat-denominated obligations that they need to be able to reliably pay
They do not need to create these fiat-denominated obligations, and once entered, they usually have escape clauses
The volatility of BTC relative to their fiat currencies is expensive to deal with
True, sometimes. But its volatility trend is helpful over time. Patience fixes this.
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When two things compete in the same category ("store of value"), they are either equal, or one is worse.
Nope. With enough experience you see that usually there aren't better/worse things - only trade-offs. Things are not one-dimensional as you suggest.
If they exist, blockchains and lightning channels are a worse place to do that than other systems like sql databases
What about people that are blocked from banking system? Uncensorability is the main feature of bitcoin blockchain.
They do not need to create these fiat-denominated obligations, and once entered, they usually have escape clauses
Citation needed. Of course most people have fiat-denominated obligations and saying they don't, won't change the factual reality.
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None of your assumptions correlate to reality. It's the reason stablecoins have such a huge market.
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He's a brainwashed Bitcoin maxi, OF COURSE his viewpoints don't correlate with reality. They're almost as bad as the Trump cult.
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If they exist, blockchains and lightning channels are a worse place to do that than other systems like sql databases
Other people answered the rest of your comment well. But for this specifically, you're wrong. SQL databases have essentially zero auditing capabilities.
Even in an environment with centralized trusted third parties, blockchains are better than pure SQL databases. It's to the point where I would be very dubious about working on a trusted third party system with significant dollar value, that didn't use a blockchain for auditing.
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I agree with everything you said, but for the billions of people that can't get dollar bank accounts and don't trust Bitcoin yet, something like USDT is not a bad first step.
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something like USDT is not a bad first step.
If they don't trust bitcoin yet why would they trust USDT? It has more trust assumptions, not less
A good first step toward trusting bitcoin is trying it
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Because they've grown up trusting the dollar. You have to understand that for most people in the world, dollars are the best store of value they've known because their own currency debases faster. But sadly, most don't have access to dollar bank accounts, and if they save at all it's with cash. That doesn't work very well because it's easily stolen or lost, so for them, USDT is an upgrade over cash. They don't know much about Tether the company or the trust they're placing in the many custodians, they just know its value stays the same in dollar terms.
In other words, the gap between what they already trust (dollars) and what they're asked to trust (USDT) is smaller than the gap between what they don't trust (BTC) and what they're asked to trust (BTC again). But the gap between USDT and BTC isn't nearly as big, which is the point of my comment.
If you want to see how stablecoins and BItcoin are perceived on the ground, go to a country like Turkey or Indonesia and talk to the people actually using it. Many of them get into Bitcoin after some good experiences with stablecoins.
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Show me a Bitcoin beach like effort that started out with any stablecoin and it now Bitcoinized.
This seems like a mind-set problem we really need to get over. None of our "bright spots" aka places that were Bitcoinized became that way the way a lot of people think they did.
OR
Simply show me the evidence of your claim actually happening in real life outside the hypothetical. Then, I will study the likelihood that a person who starts with a stablecoin ever makes the transition to Bitcoin.
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something like USDT is not a bad first step.
That literally means going back to fiat. Any stablecoin by design is a fiat token. That means you are contradiction yourself
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Excellent post!
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100% BASED
Tether's given so much hush money to a lot of maxis, just ao they can shill their garbage shitcoin and pretend they're saving the global south, whilst still skewing price discovery.
This is a cancer we have to really get rid of before we move forward.
What's your thoughts on moving this worthless piece of crap, as taproot assets, cos that appears to be the next phase atp?
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Who cares about Tether. Never seen a tether, never used a tether... they're centrally controlled aren't they? Can be frozen, issued out of thin air by one company right?
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300 sats \ 0 replies \ @nym 18 Oct
Tether is not safe to use.
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I recommend they use bitcoin. It is better money anyway, and the point of all this is to help the world use a better money, not just make it so your wallet works at a few more places.
Merchants don't get it because they also need to restock and from where they buy, they don't accept Bitcoin. Until manufacturers start accepting Bitcoin, merchant adoption isn't gonna pick up.
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Partially true, but not all of a merchant's expenses come directly from manufacturers. Merchants could accept bitcoin and use part of it to pay for expenses on things that aren't from manufacturers. There are travel websites that accept bitcoin like cheapair and travala, and things like uber and amazon are easy to use bitcoin for thanks to btc-accepting gift card sites like bitrefill and the bitcoin company.
For manufacturer stuff, the merchant could get a quote from the manufacturer, sell enough bitcoin to pay that bill, and then pay it with the fiat -- all while petitioning them to start accepting bitcoin too. And seek out manufacturers that do accept bitcoin. I would like to start assembling a list of such. I saw one advertising at btc++ in Berlin last week, but unfortunately I forgot their name.
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For manufacturer stuff, the merchant could get a quote from the manufacturer, sell enough bitcoin to pay that bill, and then pay it with the fiat --
This makes sense but then there's a problem of sudden price drop. The merchants and the manufactures don't get it because of volatility in price as well.
I meant if the source of a product starts accepting Bitcoin, there will be no problem for anyone. The money (Bitcoin) will start rotating in the economy. We'll start seeing an MRP in Sats on the products.
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You should read I, Pencil by Leonard Reed. There are unimaginably many sources for even the most mundane products.
I think the wisest way to proceed is to keep making bitcoin easier to use for those who take an interest in it. It'll be a gradual and imperfect spread through the supply chain.
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I, Pencil
Good suggestion, I've always heard great things about that book
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Here's the pdf
It's hardly 10 to 15 minutes' read.
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It's pretty short. You could probably knock it out before bed tonight.
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Thanks! I'll definitely go through it.
I agree with you on Bitcoin adoption as well.
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Just read it. It's a great essay. Though, in order to digest it completely I'll need to read it again, perhaps many times. Thanks 🙏
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Bitcoin is the stablecoin... but yeah is long way until shitcoiners and fiat maxis will get it.
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1021 sats \ 1 reply \ @Bitcoiner1 18 Oct
Bitcoin is for rich people, I mean people who already have some savings and need a tool to store value for a better future.
In many countries ( I'm from Venezuela), people live day by day, with the mix of low salaries and hiper inflation is impossible to save money for the future. As soon as they get their salaries they buy a little bit of food to store value and to eat it.
As using Bolivares was a total chaos and access to USD is controlled by the Government, USDT and USDC fill this gap.
Bitcoin is for the long run, Stable coins is for yesterday and today debts.
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I came to say this but you said it better. I've studied it, you've lived it. Have some sats.
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21 sats \ 0 replies \ @nym 17 Oct
Bitcoin is King.
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10 sats \ 6 replies \ @anon 17 Oct
Extra third parties -> Yep
Store of Value -> "Patience heals the volatility wound." when bitcoin is down 75%, sadly, patience doesn't heal mortgage payments and grocery bills
Medium of exchange -> "The same problems afflict all options" ... not true, wildly different problems, trust assumptions, UX, and fees.
Unit of account -> Unit of account is more than prices in stores. For example contracts and financial assets. Tech hasn't solved that.
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when bitcoin is down 75%, sadly, patience doesn't heal mortgage payments and grocery bills
Wow! I didn't know that. Since 2009 how much do you think Bitcoin has dropped in value in terms of Bitcoin?
Or is it that dollar has been falling at 90 degree against Bitcoin?
Difference in perspective.
Don't think gains and loses. Think of changing to the real money. Fiat is a scam not money.
Money is what that can increase its worth (not value), fiat does opposite.
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when bitcoin is down 75%, sadly, patience doesn't heal mortgage payments and grocery bills
also true of fiat currency
maybe use the better money since both have the risk of dropping by 75%
not true, wildly different problems, trust assumptions, UX, and fees
Thank you for naming three specific problems, trust assumptions, UX, and fees. I assume you are saying bitcoin is worse than stablecoins and stablechannels in these three categories. Is that correct? And are you willing to defend that statement against my criticisms? I think bitcoin has better trust assumptions, better UX, and better fees than stablecoins and stablechannels. If you think it's worse, why?
Unit of account is more than prices in stores. For example contracts and financial assets. Tech hasn't solved that.
Seems like volatility clauses fix that
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also true of fiat currency
No, is not true for the stablecoin with ~99% market dominance, USD. The chances of BTC dropping 75% in one year are much higher. Get real.
I assume you are saying bitcoin is worse on [trust assumptions, UX, fees]?
Trust assumption is better with bitcoin vs. stablecoins. And depends on circumstances of payments obviously, but in many cases yes: BTC has worse UX and worse fees vs. stablecoins.
Seems like volatility clauses fix that
Volatility clauses vs. what, the dollar? AKA unit of account.
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The chances of BTC dropping 75% in one year are much higher. Get real.
I don't think so. The dollar's value is propped up by people who are not trustworthy. It could easily drop 75% in a year. It's not a matter of chance; it's a matter of who makes the decisions.
Trust assumption is better with bitcoin vs. stablecoins
Agreed
in many cases yes: BTC has worse UX and worse fees vs. stablecoins.
If the cases are many, surely you can name one
Volatility clauses vs. what, the dollar? AKA unit of account
Good point
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I don't think so. The dollar's value is propped up by people who are not trustworthy. It could easily drop 75% in a year. It's not a matter of chance; it's a matter of who makes the decisions.
If that happened the whole financial system would collapse and bring bitcoin down with it. Everything is ran on confidence which includes bitcoin as well.
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You seem to be referring to the price of bitcoin. What do you mean bring bitcoin down? In the face of total fiat disaster you better believe blocks are still going to be filled with transactions. Which is sort of the point, right?
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Try running a business where your costs (wages, materials) and perhaps income as well is both in Bitcoin and fiat. Once a Bitcoin drawdown causes you to not have enough money to pay wages or your suppliers and you have to close down, you'll change your mind. Stablesats are effectively a futures contract and a very useful business tool to solve such problems.
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Rather call “stablecoins” as “fiatcoins”
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You have made the same mistake nocoiners make when seeing shitcoiners and assuming bitcoin is part of that.
Almost everyone talking stablecoins is a fucking retard. In fact, it could very well be 100% other than myself, which I take no pride, in fact, I find it shameful to belong to such a species, but I digress.
Anyway, your axiomatic flaw is that you are discussing equilibrium states, which is nonsensical as we are not only not in an equilibrium, but we are approaching the most sudden economic singularity human history will ever witness.
You state ~dollars are not better than bitcoin as a unit of accout, but this is 1) wrong; 2) as nonsensical as people who say "bitcoin cannot be bitten like gold". Your statement "because this is a solved problem" is a logical non-sequitor -- perhaps you meant stablecoins are no better than dollars? When you have a complete understanding of Unit of Account, it all becomes a lot simpler. As the post a year ago asking about a bakery with prices fixed in bitcoin demonstrated, using bitcoin as your price will cause economic trade relationships and businesses to fail (sort of like an impedance mismatch -- you are vertex n + 1, with supplier as vertex n, but there is a web of customers in front, and lower tier supplier behind your supplier that are all on a different standard, which is volatile with respect to yours).
Unit of Account is actually a lossy compression of Measure of Value plus Standard of Value, and when the latter is considered, two things became easy to admit as obvious 1) the US dollar is far and away the best monocomponent Standard of Value in the world today, and 2) the only thing that can beat the dollar on this measure is a multi-component / composite Standard of Value into which a fraction of bitcoin can be introduced. It is at that point where the discussion of a composite stablecoin vs a fictitious/emergent "composite coin of currency" that is realized as the implication of a complex sequence of forward contracts withing relational trade, labor agreements, or short term trade credit, lease agreeements, and so forth.
I truly tire of being this far ahead of fucking everyone for a 2017er, and this after openly sharing all this for two years (not to mention, it's been around since 1875). Kafkaesque af
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Excellent post great thoughts, spot on!
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Oh stablecoins are definitely worse. I think it is better to be in a stablecoin than a Peso or Zimbabwe currency...
I look at it as a stepping stone, not everyone will be fully educated on Bitcoin...
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I like stable coins so I can convert to fiat without having to go through a bank.
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Tl:dr
The answer is "yes." They are all dumb.
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Based
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Yeah. Dumb 150 billions and rich men nurturing poor people about patience.
You may look at stablecoins and stable changes as Bitcoin based derivatives. It won't be conflicting so much with reality.
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I can see the use case for these in bear markets, but users of stablesats/channels get left behind big time in bull markets. But then again users could just use their bank account to hold fiat.
Typical brainwashed Bitcoin maxi. Fails to realize Bitcoin is far behind the rest of the crypto universe and tries to slander and smear other online currencies that are doing things better.
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