The dual face of stablecoins: a tool of freedom or an extension of the financial order?

Is stablecoin a new starting point for digital finance, or the end point of the “monetary freedom experiment”?

Author: Seven Research

Stablecoins have become a hot topic recently. They have become a hot topic in the crypto industry and in the wider public. News reports, regulatory trends, financial innovations… Stablecoins are being pushed to the center of the stage.

But people's views are not consistent.

On the one hand, optimists believe that stablecoins are the next key breakthrough for the crypto industry to access mainstream finance and achieve widespread application . It continues the openness and efficiency of blockchain, while alleviating the problem of sharp price fluctuations of crypto assets such as Bitcoin, and is seen as a compromise between technological ideals and practical needs.

On the other hand, some people believe that stablecoins may be a way for the crypto world to be "recruited" . They rely on fiat currency anchoring and are subject to the regulatory framework of the real world. In a sense, they are a digital extension of the traditional financial system. Does this mean that the blockchain ideal, which was originally intended to build a new decentralized order, is gradually being incorporated into the old track?

This also brings up a more fundamental question: Is stablecoin a new starting point for digital finance, or the end point of the “monetary freedom experiment”?

To answer this question, perhaps we have to start from the beginning: start from the core contradiction of why Bitcoin is regarded as a "failed currency" in the mainstream context, and then review the process of stablecoins from early exploration to gradual mainstreaming.

Finally, we need to return to the deeper logic - how the fundamental differences between the two schools of economics affect our understanding of the nature of money.

It is this set of thinking background that constitutes the key reason for the divergence between stablecoins and Bitcoin, and reflects a realistic choice about "what basis trust should be built on".

1. Let’s start with Bitcoin: “Failed Currency” under the Standards of Mainstream Economics

To understand stablecoins, we must start with Bitcoin. Bitcoin was born out of reflection on the 2008 financial crisis and is an experiment that emphasizes both technology and philosophy. Satoshi Nakamoto tried to answer an important monetary philosophical question through Bitcoin:

If currency does not rely on the state, is not regulated by the central bank, and is only determined by algorithms and the market, can it still assume the responsibilities of currency?

There are three key words contained in the design of Bitcoin: freedom, scarcity, and volatility .

• Freedom : not controlled by the central bank, prices are determined by the market;
• Scarcity : The algorithm limits the total amount to 21 million;
• Volatility : Lack of anchoring mechanism, extremely sensitive prices.

This structure leads to a fundamental contradiction: although it has the attribute of "value storage", it is difficult to circulate widely in the daily economy due to its violent fluctuations and lack of stable payability and calculability. According to the mainstream macroeconomics school (such as Keynesianism), money should have three functions: medium of exchange, value scale and value storage, among which stability is the core premise.

This is exactly the real dilemma facing Bitcoin: despite its scarcity advantage as a store of value asset, it is a failed "currency" under mainstream economic standards .

2. Exploration of Stablecoins: Finding a Way Out Between Ideals and Reality

It is the contradiction between Bitcoin's "idealism vs. pragmatism" that gave rise to the emergence of stablecoins. Stablecoins attempt to combine the technical advantages of blockchain with the stability of legal tender to become a truly "usable" digital currency, and their development has gone through several iterations.

1. The first generation of exploration and the rise of fiat currency collateral

In 2014, the world's first crypto-asset-collateralized stablecoin, BitUSD , was launched. It attempted to use crypto assets (BTS) to support a 1:1 peg with the U.S. dollar, but due to the sharp price fluctuations of the collateral, it ultimately failed to depeg, proving the inherent risks of using highly volatile assets as collateral.

In the same year, Tether launched USDT in a fiat currency collateral model. Its model is simple and intuitive: for every USDT issued, the company promises to reserve assets worth $1. As a representative of realism, USDT quickly gained market recognition. However, the opacity of its reserve funds has been controversial, and the lack of effective supervision has made it a huge "black box".

In 2018, Circle and Coinbase jointly launched USDC , which focused on compliance and transparency, and proved to the market that its reserves were sufficient through regular audits. However, during the US banking crisis in 2023, USDC was once decoupled because part of its reserves were stored in the collapsed Silicon Valley Bank. This incident exposed that even "compliant" fiat-collateralized stablecoins have fundamental risks:

• Centralization and single point of failure : Reserve assets are heavily dependent on a few traditional financial institutions. Once these institutions have problems, stablecoins will face a huge impact.
• Vulnerability under regulation : Stablecoins cannot be completely isolated from the risks of the traditional financial system, and regulatory policies and market turmoil will still be directly transmitted to the on-chain world.

2. Trials and compromises of decentralized models

To solve the centralization problem, in 2017, MakerDAO launched DAI, a decentralized stablecoin that uses excess crypto assets as collateral. It is managed by smart contracts and avoids human intervention. However, this model has the problem of capital inefficiency (excess collateral is required), and in order to maintain system stability and scale expansion, MakerDAO eventually had to include centralized stablecoins such as USDC in its collateral asset portfolio. Although this move is pragmatic, it also deviates from the pure decentralization ideal.

3. Radical Experiments and Collapses of Algorithmic Stablecoins

Algorithmic stablecoins are a more radical exploration, attempting to completely get rid of any collateral and maintain price stability only through automatic adjustment of supply and demand by algorithms. Its typical representative, UST (Terra/Luna), experienced an epic "death spiral" in 2022 by imitating the central bank's monetary policy, and its market value almost returned to zero within a few days. This crash exposed the fragility of pure algorithmic models under extreme market pressure, and almost declared the failure of such experiments.

4. Different paths to the same destination: return to regulation and centralization

The collapse of algorithmic stablecoins and the reliance of decentralized stablecoins on USDC/USDT have refocused the market on fiat-collateralized stablecoins. Although they have centralization risks, they are currently the only market-tested model that can operate on a large scale.

However, this situation has also aroused great vigilance from governments around the world. Take Tether, the issuer of USDT, for example. It has become one of the major holders of US Treasury bonds, and its scale is sufficient to have a potential impact on the global financial market and a country's monetary policy. Therefore, it has become a consensus among major economies around the world to fully incorporate stablecoins into the financial regulatory framework .

The exploration of stablecoins ultimately seems to have returned to what it originally wanted to get rid of - the centralized regulatory system.

3. The clash of two monetary views: Is Bitcoin wrong?

The struggles of stablecoins in the real world have forced us to re-examine Bitcoin.

In the view of the Austrian School of Economics (representative figures include Hayek and Mises), money is the result of spontaneous evolution of the market, rather than a system imposed by the state.

Mises proposed the "Monetary Regression Theorem": a commodity must first have the function of storing value before it can gradually evolve into a transaction and pricing function.

From this perspective, Bitcoin is not a failed currency, but an early form of currency that is still evolving .

This is in stark contrast to the logic of the mainstream economics school that "stability comes before circulation":

Therefore, Bitcoin is a failure in the eyes of the mainstream school, but in the eyes of the Austrian school, it just needs more time. The emergence of stablecoins is more like a "transplantation" of mainstream monetary ideas in the blockchain world.

4. Bitcoin and Stablecoins: The Tug of War between Two Monetary Philosophies

The differences between Bitcoin and stablecoins are not only about technical routes, but also about the opposition of two monetary philosophies:

Bitcoin’s pursuit of “denationalization of currency” is a revolutionary idealistic narrative that emphasizes anti-inflation and anti-censorship; while stablecoin is a compromising realist solution that emphasizes availability, liquidity, and ultimately chooses to embrace regulation.

Behind these two concepts is a philosophical tug-of-war:

Freedom vs stability, volatility vs order, revolution vs compromise.

5. Bitcoin is at a fork in the road

The essence of money is social trust. The core question of the debate between Bitcoin and stablecoins is: what should we trust? Should we trust the rules executed by the code, or should we trust the existing financial institutions and regulatory system?

The answer given by Bitcoin is the former. Its goal is to establish a system based on algorithms without human intervention and pursue complete decentralization.

However, the development process of stablecoins is somewhat unexpected: this innovation, which started with the concept of "decentralization", has gradually returned to the traditional model it wanted to replace in order to be widely accepted by the market - relying on banks and accepting supervision. It looks more like using new technology to serve the old US dollar system rather than creating a brand new system.

This is no longer a simple choice of "revolution" or "compromise", but reflects a more realistic question: Are people naturally more inclined to rely on a visible authority rather than an invisible algorithm? The success of stablecoins seems to indicate that the public prefers the latter between pursuing absolute freedom and choosing reliable protection, even if this protection is not perfect.

In the future, the two may not conflict. Bitcoin may become a kind of "digital gold", a value reserve independent of any country. Stablecoins, under supervision, serve as digital cash for daily use, becoming a bridge between the crypto world and the real world. They may not be in a competitive relationship, but different roles in a new financial system.

But the fundamental question remains: Are we moving toward a more open, diverse financial future, or are we using new technologies to build a more efficient, more hidden, centralized system?

Bitcoin started this experiment on trust, and the development of stablecoins has put this choice directly in front of us.

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