The Killer Crypto App

Quoting Voltaire from 1729: “Paper money eventually returns to its intrinsic value – ZERO”. Indeed, history shows that all fiat currencies have gone without fail to zero.

I know this firsthand — I have lived through 8 different fiat currencies in Brazil. The most recent, the praised Brazilian real introduced in 1994, has already lost 90% of its purchasing power (and 98% against the barbaric relic). 

Even the “mighty” dollar has lost 96% of its purchasing power after the creation of the Fed in 1913, a sharp contrast to the century of price stability that prevailed under the gold standard.

Since all fiat currencies are in a race to the bottom, the least bad one prevails — and that has been the dollar. Recently, there has been a lot of talk about the dollar’s decline. However, with the rise of stablecoins, the greenback’s dominance is only growing.

Stablecoins have emerged as the killer crypto app, delivering on Bitcoin’s original promise by offering a stable medium of exchange (and even yield). Rather than reducing the dollar’s relevance, they are reinforcing it.

Public blockchains are bringing the dollar to billions of smartphone users worldwide, enabling frictionless cross-border transactions. The surge in demand for tokenized dollars (stablecoins) has fueled a $200B industry, with dollar-backed stablecoins dominating over 99% of the market

Stablecoins saw explosive growth in 2024, with transfer volumes reaching $27.6T — surpassing Visa and Mastercard combined [direct tokenization of US Treasuries is also gaining momentum]. Tether’s USDT and Circle’s USDC dominate the space, generating revenue primarily from interest on their fully backed 1:1 reserves (not 10:1 fractional reserves!), which consist of transparent, audited short-term US Treasury holdings (currently at $120B), along with transaction and service fees. And much like major banks, they may soon become too big to fail.

Legislative momentum is also building up, with stablecoin-focused regulations expected to pass in 2025, as the US government recognizes their important role in expanding the dollar’s reach.

In emerging markets, dollar-backed stablecoins present a viable alternative to weaker local currencies. When given the choice, merchants and citizens will increasingly favor the stability of a digital dollar, with dollar-denominated savings serving as a key driver of adoption.

Finally, for clarity, it’s important to distinguish between dollar-backed stablecoins and CBDCs (the creation of which was sensibly banned in the US), as they are two different concepts. Stablecoins built on decentralized, permissionless blockchains provide superior privacy, censorship resistance, and cross-platform interoperability. And, obviously, solutions provided by private markets are always preferable to those imposed by governments.

Conclusion

16th century Gresham’s law states that “bad money drives out good”. However, the digital nature of dollar-based stablecoins challenges this long-standing concept – they may drive out weaker emerging countries fiat currencies.

Rather than undermining the dollar’s dominance, blockchain technology has built a digital infrastructure that strengthens it. Once seen as a vulnerable incumbent in the face of blockchain innovation, the dollar has emerged as its biggest beneficiary. What an irony!