Is it feasible to unify the world with stablecoins?

In the 1970s, a month's salary was only enough to buy a bowl of noodles today. The power of time is terrifying, which is why many people wish that currency would not depreciate. This includes many leaders who hold a large amount of assets, and they are particularly troubled by the shrinking value of fiat currency.

So, can we use a currency with stable value, whether called a stablecoin or not, to replace the current fiat currency? In fact, I have mentioned this issue many times for a long time, but unfortunately, many friends do not like to read it. The first mention of stablecoin was almost four years ago, and many friends said they couldn't understand what I was writing. The second time was about two years ago, and there was no interest; the click rate plummeted. The third time was a year ago, because the concept of stablecoin was something my readers needed to understand; otherwise, many articles couldn't be written. As a result, I originally planned to write three parts to comprehensively introduce stablecoins, but by the second part, the number of readers was less than half, and by the third part, people might have left, so I gave up. This is also the reason why many people today, especially a few of my readers, still believe in various fallacies, because they do not understand what a stablecoin is.

Without knowledge and a dislike for learning, you will forever be a leek, a novice (let me find some historical articles later).
Strictly speaking, the so-called stablecoin should actually be called "unstablecoin". Many people, including some so-called professors and experts, parrot this concept without fully understanding it.

Next, let's continue to popularize the knowledge that everyone should have known by now.
Stablecoin, as the name suggests, is a guaranteed currency that maintains a "stable" value (therefore, a supranational digital currency cannot be a stablecoin, because stablecoins are centralized, while supranational digital currencies are decentralized). There are three main types of collateral, and stablecoins can be divided into three types.

The first type is a physically backed stablecoin, including but not limited to gold, oil, diamonds, etc., such as the Venezuelan Petro, which is equal to one barrel of oil.
The second type is stablecoins represented by fiat currency, which generally have a one-to-one ratio with fiat currency, and are the mainstream of current stablecoins, such as USDT, abbreviated as U. Currently, the vast majority of stablecoins are fiat-backed stablecoins, such as U, which is backed by the US dollar, maintaining a constant one-to-one ratio. Most stablecoins are pegged to the US dollar, although there are also stablecoins backed by other national fiat currencies (Hong Kong may recently issue a stablecoin backed by the Hong Kong dollar).

The third type is algorithmic (computational power) stablecoins, which bind two cryptocurrencies together through complex algorithms. If one falls, an arbitrage mechanism will cause a large influx of buying into this stablecoin, ensuring its value remains stable. This idea is theoretically feasible, but in practice, it gets shattered by human nature. When one currency drops, people do not sell the other currency to buy into this pegged currency; instead, they rush to sell both currencies, causing them to plummet (often over ninety-nine percent) within a very short time (usually a day), leading to the collapse of the entire carefully constructed value system. Just think about it: with two pegged digital currencies, if one experiences a significant drop, the other won't even have time to escape. How can it be "You all go, I’ll cover you?" Human nature is like this. Of course, there are also some arbitrageurs, victims of arbitrage theory, who rush in intending to profit at the edge of a knife, only to end up losing everything.

Here is a quote from a report by Pengbai News in 2022: The third largest stablecoin, TerraUSD (hereinafter referred to as UST), suffered a collapse that shook the entire coin circle, leading to a collective plunge in cryptocurrencies.
UST, as an algorithmic stablecoin, originally attempted to maintain supply and demand balance through an arbitrage mechanism established with its sister token Terra (hereinafter referred to as LUNA), but ultimately both fell into a "death spiral" after encountering redemption sell-offs, nearly collapsing. This week, as UST's official high-interest subsidies are about to run out, the market is heavily selling off UST, and the market confidence and price of LUNA have also been severely impacted. According to CoinDesk data, as of the time of writing, UST is quoted at $0.09149, with an intraday decline of over 85%; LUNA is currently quoted at $0.008655, with an intraday decline of over 98%. As a stablecoin, the price of UST needs to be pegged to $1, and prior to this plummet, its market value was close to $20 billion at its peak. The highest price of Terra once reached $119.5, with a market value exceeding $40 billion. Terra has also been referred to by some as the "Moutai of the crypto world."

UST is a typical algorithmic stablecoin. In addition to it, there are many other algorithmic stablecoins, such as USDC, which ultimately all collapsed without exception. As a result, two years ago, the U.S. Securities and Exchange Commission announced a two-year ban on the issuance of any algorithmic stablecoins.

It can be seen that the main problem lies in the fact that the computational power stablecoin is not backed by real assets, so once problems arise, people will rush to sell, leading to a collapse. This is a human nature issue; no matter how sophisticated the algorithm is, it cannot change the outcome. Moreover, the first type of stablecoin is not very stable either, such as the Venezuelan Petro, whose value has halved, failing to achieve its original purpose.
Relatively speaking, stablecoins backed by fiat currency are not a big problem as long as there are no issues with the fiat currency, because they are backed one-to-one by fiat currency and stablecoin.
The main issue is that regulation may be inadequate, failing to meet the basic requirements of stablecoins. For example, if you have 10 billion fiat currency but issue 30 billion stablecoins, the reserves are insufficient, leading to a run and collapse, like FTX. So, seeing this, everyone should understand that computational power stablecoins are a typical Ponzi scheme. Physical or fiat-backed stablecoins must be backed 1:1 by fiat or physical assets. In reality, the problems with fiat stablecoins mainly arise from a lack of regulation, leading to deficits. For example, FTX. Because stablecoins are backed by fiat, using stablecoins is equivalent to using fiat. If the state does not collapse, the stablecoin will not collapse. Therefore, the state can leverage the issuance of stablecoins for profit, which is why governments around the world are very enthusiastic about issuing such stablecoins.

Therefore, stablecoins do not belong to decentralized cryptocurrencies (as many previous articles have mentioned, digital currencies are divided into three main categories: digital fiat currencies, stablecoins, and cryptocurrencies). Thus, compared to fiat currencies, they are merely a change of form without substance. The inherent flaws of fiat currencies, such as excessive issuance, inflation, and currency devaluation, still exist and may even be more severe. Therefore, fiat-backed stablecoins only meet regulatory demands at the national level. As a form of centralized currency, they are worse than fiat currencies. So, if regulations can be strengthened and all loopholes closed, can fiat-backed stablecoins become super-sovereign digital currencies?

We can talk about this issue again when we have the opportunity.