How Stablecoins Became the Digital Gold Standard

This article seems to be built on a few misconceptions.

It starts off with the claim that stablecoins are the modern-day 'digital gold standard' which they really aren't. Stablecoins are just tokens on a blockchain the vast majority of which are backed by US dollar cash and cash equivalents. There is nothing gold-like about these stablecoins. Maybe the article refers to the rumors that Tether isn't fully backed but this isn't clear from the article. As the article also mentions, the GENIUS Act requires compliant stablecoins to be fully backed (by US dollars) so the GENIUS Act would actually be the reverse of what Nixon did in 1971 by leaving the gold standard. The problem with the gold standard was that gold is a scarce physical asset that cannot just be created. There is no scarce asset involved in stablecoins so the comparison between stablecoins and the gold standard doesn't make much sense to me.

Then there is the claim that there are $13.2 trillion 'shadow dollars' circulating outside the United States via stablecoins which makes no sense given that the biggest stablecoin (USDT) only has a market cap of $143 billion (actually $158 now) which is also mentioned in the article.

The article then goes on to compare the GENIUS Act to the Nixon shock by 'turning off the stablecoin faucet'. It then correctly mentions that major stablecoin issuers already have freeze and burn capabilities so it becomes unclear how the GENIUS Act would 'turn off the stablecoin faucet'. From all I've read and heard so far people expect the passing of the GENIUS Act to lead to increasing stablecoin liquidity.

Article does not make sense to me. Starts off with the Triffin dilemma; its definition of the concept as "the incompatible conditions that dollars must be supplied to the world, but at the same time, they must maintain trust and control" has nothing to do with the actual Triffin dilemma. The actual dilemma does talk about the need for the reserve currency issuer to supply the world with the currency, but the actual concept juxtaposes this obligation with the inevitable trade deficits which the reserve currency issuer incurs.

The Triffin dilemma famously led to the Nixon shock in the US which ended the convertibility of the dollar to gold in the 70s, due to massive US trade deficits making it impossible to keep 1:1 backing for the USD in gold. The Nixon shock is mentioned in the article, but not how/why is happened. Neither is there an explanation of what the "second Nixon shock" is.

There is some mention of EUR/CNY digital currencies; perhaps the point is that these can challenge the USD hegemony by creating alternate globally accepted payment systems, with the second Nixon shock being the "end of USD hegemony" scenario brought up every few years?

Nothing appoints the dollar a reserve currency, it's use makes master. It's 50% of reserve worldwide, the Euro is 20% and a range of currency follows.

It can change. Breton Woods isn't physics, its a social construct.

What I’m genuinely curious about is the recent trend of numerous countries announcing plans to create their own stablecoins. From news reports alone, I’ve seen China, Japan, South Korea, Saudi Arabia, and the United Kingdom, among others, pursuing this path. If each country develops its own stablecoin, what would be the practical significance? I understand that dissatisfaction with the existing SWIFT system is driving this rush—everyone wants their own alternative. However, this raises a fundamental question: what will ultimately serve as the global standard? The current trajectory suggests we’re heading toward a fragmented landscape where multiple sovereign digital currencies compete for dominance. While each nation naturally aspires to establish their currency as the international standard, this creates an inherent contradiction. Without coordination or convergence toward a unified system, we risk replacing one centralized system (SWIFT) with multiple competing systems, potentially creating more complexity rather than the streamlined efficiency these initiatives presumably seek to achieve. The real question becomes: will market forces, political influence, or technological superiority determine which digital currency ecosystem prevails, or will we end up with a permanently fractured global payment infrastructure?

There may be fortunes to be made understanding mechanics here, but to the more general audience a strategic awareness of the unfolding, decentralized financial landscape and relatively early intervention on the part of the US should be heralded with great relief to help stave off the dystopian network state so beloved by Balaji et al

I think the concern is that stablecoins are actually minting dollars, because they don’t appear to have $1 for $1 reserves of their stablecoin.

If you look at the Tether controversy where they were investigated by the government, the reason why they were able to sell was that they were no longer operating in the USA not that they had the proven reserves to back the currency.

IMVHO: cryptos rise because fiat money are considered less and less a trustable asset. People do not understand that behind stablecoin there is thin air, not differently than fiat money, but they trust more such thin air than the ones from official central banks.

Why would you call it a gold standard. It's just extending the existing dollar standard.

The article does not make sense i.e. in a way a econ or fed watcher off the street could agree with or reject.

But it has enough planks in the marketing of stable coins by presenting it as close to power, growing in power, and because of that is in the throws of pains as it semi directly plus semi indirectly becomes bigger than visa + Mastercard and as it area-51-x-files its way into taking over the world as the alter ego to the usd reserve currency.

If it took place in 1785s and was in French it's the kind of close to power intrigue that yields the diamond necklace affair. Frankly, the French are better at telling stories.

This is a political marketing piece whether or not the op meant it or not.

So this article is a whole load of misconceptions all the way down.

It whitters on about the dollar supply being inflationary, then talks about gold standards.

THe whole point of abandoning the gold standard is to stop deflationary shocks.

But.

THe very act of creating stable coins is inflationary, as it increases the dollar supply[1]. The only difference is that (unless the "genius" act changes that) when a convertible coin crashes, there's no bailout mechanism.

[1] When someone buys a stable coin, they give the "banker" a $1 in exchange for a thing that is "worth" a dollar. The "banker" can, if they are careful, then re-spend that dollar. The token can be exchanged for goods/services worth $1. thus the money can be spent twice.

Of course this is also how investment banks work.

TLDR stable coins are not gold standard, and never were.

Taking a page from Nixon‘s playbook and then what? Redo the 70-80 period? Is that desirable and what could possibly go wrong?

Frankly while crypto and stable-coins may pose great risks the direct interference attempts of the master of the executive in tax, crypto and treasury policies is a far greater one.

great article! That's what I need

A mainstream gold-backed stablecoin is inevitable IMO. That's way more interesting/resilient than any fiat-backed stablecoin.

This article seems to be built on a few misconceptions.

The entire crypto financial everything is entirely built on misconceptions, that is their sole asset.

>The problem with the gold standard was that gold is a scarce physical asset that cannot just be created.

I don’t find that a problem at all, it was what made the money work and be worth something.

https://wtfhappenedin1971.com/

This article was written because I suddenly remembered a story I wrote in 2018 to someone working in Singapore. As I also mentioned in the writing, it has a strong conspiratorial nature. However, I personally have such doubts. Currency should fundamentally be exchangeable, but currently Tether and Circle exchange these for dollars and purchase relatively safe short-term government bonds from the US or China, making this arrangement seem natural. However, if they were to face a situation like a bank run or become unable to pay out $1, I think the analogy of a “water faucet” wouldn’t necessarily be incorrect.

The entire crypto financial everything is entirely built on misconceptions, that is their sole asset.

You know I agree. And it made me win far less from crypto than I would have if I weren’t a skeptic from the start. But recently something changed my mind:

Friends from an occupied territory visited on their travels and they said they can only pay with cash since their cards do not work in the let’s say „free world“ (my wording not theirs). And they said how difficult it is to live without a CC. You can’t get a hotel room in many places.

This made me reconsider my stance on using cash and I started doing it again just so it survives.

But let’s say cash goes away, in that case we _need_ an alternative that cannot be censored, blocked or otherwise cancelled.

And this could be Bitcoin (or let’s say litecoin - my favorite)!

But yes so many scams and as you say misconceptions everywhere. People don’t understand money and they think whatever promoters tell them to think.

The article does not make sense i.e. in a way a econ or fed watcher off the street could agree with or reject.

If it took place in 1785s and was in French it's the kind of close to power intrigue that yields the diamond necklace affair. Frankly, the French are better at telling stories.

This is a political marketing piece whether or not the op meant it or not.

Why would you call it a gold standard. It's just extending the existing dollar standard.

I think the concern is that stablecoins are actually minting dollars, because they don’t appear to have $1 for $1 reserves of their stablecoin.

great article! That's what I need

Came here to say this. I'm quite curious to know what the author means by "digital Nixon Shock".

If hard digital assets (i.e. assets the US have limited control over like BTC, ETH, etc) gets shocked by a liquidity shortage it should on the contrary kill more of the USD dominance, which will shock more hard assets, which will kill more of the USD dominance... a feedback loop leading to the obliteration of the USD hegemon.

Stablecoins are just tokenized versions of exisiting currencies. Instead of settling through the current financial system which takes days for a global transaction you settle on a blockchain within seconds or minutes. These stablecoins will probably be issued on existing global blockchains like Ethereum so they might all be interoperable within a single system just like SWIFT currently supports multiple currencies.

If the Network State is something entirely voluntary, what's dystopian about it?

I think that, in general, we need more innovation in governance.