First presented on November 3, 2021 for Professor Grey's course: Law, Money, Technology seminar (Fall 2021) at Willamette University College of Law.

1. Stables
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2. Disclaimers
The views expressed in this presentation are those of my own and do not
necessarily reflect those of my employer and/or clients. All coins and tokens
mentioned in the presentation are for illustrative purposes.
I am not a lawyer.
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6. Two major types of (pegged) stablecoins
(1a) Centralized collateral
● deposits custodied at a commercial bank:
○ USDT, USDC, BUSD, TUSD, USDP
(1b) Nominally decentralized collateral
● “new” Dai, Vai (Venus on BSC), PAI (Parrot on Solana), cUSD (Celo)
(2) Algorithmic
● Rai / Flex*, UST / Luna, Frax / FXS*, “old” Dai
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7. Where we are going we don’t need banks… except to help
clear the wires for the liquidity providers… oh and also and
provide a stable unit-of-account… and for recourse in case
something bad happens.
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9. Banked and bankless exchanges (CEXs)
(Pegged) stablecoins provide a couple of fundamental bits of utility:
● help traders / users weather volatility
● import a reliable unit-of-account (helpful for bootstrapping DeFi bros)
For intermediaries:
● International, banked CEXs may not have access to U.S. banking system, and SCs provide
a parasitic tether into this jurisdiction which coincidentally has the most liquid capital market,
as well as strict safety and soundness of banks and trust co’s
● Bankless CEXs by definition have no bank accounts and therefore are fully dependent on
exogenous on-and-off ramps for liquidity (e.g., a large proportion of USDT volume is in
(foreign) bankless CEXs
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11. What does “offshore” mean?
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12. Inside the industry
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13. Outside the industry
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14. Inside the industry
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15. Outside the industry
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16. Inside the industry
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17. Outside the industry
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18. Inside the industry
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19. Outside the industry
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21. What about DeFi?
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23. Aave
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24. Compound
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26. Multicollateral backing a single asset
As of today about 40% of the collateral backing DAI is USDC & USDP, whose
tokenized deposits are custodied in U.S. commercial banks.
Worth pointing out: in terms of collateral, part of the reason for why USDC has “shrunk”
over the past several months is because other collateral -- namely ETH and BTC --
have grown in USD-denominated value by more than 50% (since mid-July).
Note: also when exogenous coin values drop there is demand for DAI to close out
vaults, which means if it breaks above $1 thus creating an opportunity to create DAI
with USDC and sell which is relatively inexpensive.
● Vault owners needed to put up more collateral as ETH fell in value, or close their vaults. Closing
vaults meant repurchasing Dai in the market. And this demand would have pushed Dai to a premium
above $1. And the easiest way to arbitrage this premium was by using the PSM to deposit USDC,
withdraw Dai.
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27. In summary (and to re-use Professor Grey’s quote)
In practice popular stablecoins are often un(der)regulated and
un(der)collateralized bank deposits that routinely depend on the U.S. banking
system.
Ironically, while some vocal coin promoters have claimed a “hyperbitcoinization”
event will occur soon. But the cryptocurrency ecosystem as a whole has seen the
opposite take place: rapid dollarization due to the growth of commercial bank-
backed stablecoins.
This is the central conceit for much of the coin world today: promoters and meme
artisans often claim they are about to launch off from planet Earth all while drilling
ever deeper foundations into the Earth’s crust.
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28. Homework: are there any opportunities?
For next time:
Continuously measuring economic activity in a foreign exchange seems
counterproductive (e.g., frictions via transaction costs, exogenous creep)
Algorithmically stabilized tokens that adjust based on endogenous, self-referential
information (e.g., Seigniorage shares) create an on-chain unit-of-account.
Benefit: this native algo coin can be used to collateralize contracts without being
hooked into any extraterritorial jurisdictions.
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29. Contact
tim.swanson@clearmatics.com
@ofnumbers
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