Since the COVID-19 outbreak in 2019, we have seen all kinds of de-globalization trends and new restrictions. After the war in Ukraine, people also began to question the ongoing de-globalization of finance. Can the US dollar still be trusted? Can the financial institutions of neutral countries still be trusted? Behind all of these trust crises is a deeper signal: decentralized assets such as BTC and ETH point toward a better long-term direction for humanity.

We are standing at the crossroads of a major transformation.

On Power

Before talking about stablecoins, we need to talk about power.

Most current regulation aimed at crypto is only the surface. At its core, it is a struggle over power. Power naturally reinforces and expands itself. Today, most power is concentrated in the hands of politicians and the wealthy. That is why governments keep expanding their reach, while wealth becomes more concentrated in every country.

As blockchains increasingly penetrate finance and the broader economy, part of that power will inevitably move on-chain and into code. The current owners of power cannot tolerate that, so they will do everything they can to slow down or block the transfer.

The war in Ukraine offers a clear example. Since the conflict began, institutions around the world have been pressured by the United States to sanction Russian entities and individuals. Major crypto exchanges were no exception, and Binance was the clearest target. Several US politicians publicly singled out centralized exchanges, especially Binance, and demanded more aggressive sanctions against Russian users. Binance CEO CZ responded that the assets of Russian users on Binance were less than 0.3% of the assets managed by a few hundred European banks, yet US politicians kept focusing on Binance. Is Binance really more influential than all of those banks? Obviously not.

There are two main reasons.

First, centralized exchanges are disruptive to traditional finance. For a long time, finance has been operated through licensing systems that protect monopoly positions and profits. Centralized exchanges weakened that monopoly to some extent, so regulators naturally see them as a threat. As the largest exchange, Binance became the obvious primary target.

Second, assets on centralized exchanges can be moved on-chain, which makes them harder to sanction. Bank assets, by contrast, can only move between banks, and wherever they go they remain inside the same sanctionable system.

Blockchain challenges national financial systems and even monetary sovereignty. That is why governments in China, the United States, and elsewhere are all uncomfortable with its growth. After several rounds of crackdowns, China largely eliminated domestic exchanges and mining. Around the same time, despite Facebook’s efforts, preparation, and traditional financial partnerships, the United States still decisively blocked its stablecoin plan. Before the war in Ukraine, Russia also restricted BTC, allowing only mining for foreign-exchange income.

If governments around the world acted as a single coordinated bloc, they probably would have passed laws banning the use of BTC and ETH long ago. But countries have conflicting interests and different strategic goals, and that tension gives the blockchain industry room to grow.

As the global hegemon, the United States can extract value from the world through dollar issuance. Other major countries can extract value from their own populations through fiat issuance. Smaller countries suffer the most, because they barely control their own monetary systems and are mostly forced to absorb the damage. That is why El Salvador was the first to adopt BTC as a reserve asset, and why several countries in South America began studying similar policies. Now that Russia has been heavily sanctioned and partially removed from SWIFT, its attitude toward BTC has shifted dramatically, to the point of discussing BTC payments for oil and natural gas.

A chaotic world is accelerating crypto adoption. Ukraine accepted crypto donations early in the war and even issued NFTs. Russia is now discussing accepting BTC for energy purchases. These actions by governments themselves have significantly strengthened crypto consensus. This is a direct challenge to the current dollar-centered global monetary system. Because crypto is trust-minimized and cannot be controlled by any person, organization, or state, it ultimately has the potential to win.

The hidden benefit governments receive from issuing fiat money is called seigniorage. Among all the ways blockchain challenges governments, the challenge to monetary issuance is the biggest. BTC and ETH behave more like assets, but stablecoins reach into payments, circulation, and settlement, touching every part of the financial system. Governments benefit enormously from this power, and no government will give it up easily. That is the nature of power. This is why the United States in particular has intensified stablecoin regulation over the last two years.

The chart below shows US government debt from 1990 to 2020. Among more than 200 countries, the United States is actually one of the more restrained governments. Even so, its debt has been accelerating upward. It is not hard to imagine how much wealth people in other countries have lost to inflation. ![]

PayPal is a great company. Since 1998, it grew from a tiny team into a giant by defeating countless competitors and permanently changing the payments industry. Even so, PayPal never fully achieved its original vision: protecting ordinary people in most countries from inflation. Today, with money creation still expanding, even Americans are increasingly suffering from inflation.

One hundred years ago, food and housing were much cheaper than they are today, even though incomes were also much lower. As governments continue to issue fiat currency, the timing of money circulation causes the benefits to be distributed unevenly. Governments capture extra seigniorage, while a small minority who move first gain more through various channels. Most people become victims of inflation and grow poorer as money supply continues to expand.

This is not because PayPal is not good enough or not ambitious enough. The deeper truth is that PayPal cannot solve this problem, and neither can any individual, organization, or government. Seigniorage is the root of inflation. The corruption of power and the greed in human nature do not change. Faced with the temptation of monetary privilege, power cannot restrain itself forever. Fiat money will always be over-issued, which is why every credit currency in history has eventually collapsed.

Now we are ready to get to the main point. If we want to stop inflation from exploiting ordinary people, we need decentralized algorithmic stablecoins.