Cryptocurrency or Digital Dollar?
Stablecoins are a class of “cryptocurrency” designed to maintain a stable value by being pegged to a reserve asset—usually the U.S. dollar.
Unlike traditional cryptocurrencies such as Bitcoin or Ethereum, stablecoins offer the price stability of
fiat currency while retaining their programmability and utility. They are widely used for trading, remittances, and decentralized finance applications because they allow users to move money quickly while mitigating volatility risk.
Developers can program stablecoins with different pegging mechanisms. Some choose to back them with reserves held by centralized entities (e.g.,
USDC,
USDT). Others maintain the peg algorithmically or through
on-chain collateralization.
You may have noticed that I wrote
cryptocurrency in quotes above. I did this because most stablecoins are not cryptocurrencies. Cryptocurrencies, by definition, share specific characteristics: they are decentralized, permissionless, and censorship-resistant. No one can modify or alter transactions, and coins cannot be frozen or seized.
However, the popular stablecoins USDC and USDT are centralized, surveillable, and freezeable assets, characteristics that are the opposite of an actual cryptocurrency. The organizations that operate USDC (Coinbase) and USDT (Tether Limited) can treat these coins like banks treat depositor money. They can, for example, seize these assets. These funds are as “innovative” as a digital dollar living in an Excel spreadsheet.
In this regard, promoting stablecoins over a CBDC is not a win. It is a Pyrrhic victory (or a Trojan Horse). Stablecoins under the recent legislation will not be decentralized or innovative. One would be hard-pressed even to call them “crypto.” Effectively, stablecoins under the government will be CBDCs masquerading as cryptocurrency.
To understand why, let’s examine the recent bills, especially the Genius Act.
