Alex Mashinsky is CEO of Celsius Network, the Blockchain-based lending platform. He is one of the inventors of VOIP (Voice Over Internet Protocol) and is now working on MOIP (Money Over Internet Protocol) technology.
The blockchain industry has made several attempts at scaling in the past 30 years (it was invented in 1991, not by Satoshi, for the younglings out there). The space has tried privacy nets, private chains, functioning as a replacement for cash, payment systems, store of value, and more. We keep passing the baton, hoping that the next wave of adoption will scale the technology and discover more use cases.
What have we learned?
Blockchain is the slowest and most expensive database ever invented. It’s only good for a few things:
1. Keeping track of who owns what on a trustless public network
2. Keeping immutable records on an open network
3. Enabling p2p transfer of value that is censorship resistant
4. VOIP is one of the largest and most decentralized applications on the Internet. We are now trying to scale MOIP (Money over IP) to do the same for money.
In the last 10 years, Bitcoin was created, along with 2,000+ other digital currencies, to test the crypto concept as a replacement for fiat digital currencies we use every day. You know that your credit card is using digital dollars not, real ones, right?
Ten years later, Bitcoin has shown mixed results. With fewer than 30 million active users, Bitcoin has a hard time competing as a payment platform or as a fiat currency replacement for even third-world fiat currencies.
Yet, despite all of these drawbacks, I still contend that blockchain and crypto are only just getting started and will soon cross the chasm and scale to mass adoption.
The reason? Stablecoins.
Stablecoins are cryptocurrencies pegged to a stable fiat asset. Several hundred stablecoins have already been created, including popular iterations like Tether, TrueUSD, Gemini Dollar, and USD Coin. By carrying the value of one or more fiat currencies, stablecoins provide a smart contract based digital representation of their value and can be utilized via DAOs running on different blockchains. Most stablecoins use the ERC20 protocol, which runs on the Ethereum network. As institutions and companies learn to trust and implement this new and amazing global infrastructure to instantly exchange value and process payments, we may finally see mass adoption of blockchain technology
This adoption will drive Web 3.0 and demand on the Ethereum platform and increase in the price of ETH, as one can easily use discounted cash flows to value the network and its future fees. I predict that if even a fraction of the dollar payments transacted through banks and credit card companies move to this instant and low cost infrastructure, ETH will be trading above $500 by the end of 2020.
Furthermore, two of the biggest obstacles blocking mass adoption of cryptocurrency are the high barriers to market entry and difficulty mitigating risk. Because cryptocurrencies fluctuate in value significantly day by day, holders need to be able to trade their coins quickly and with minimal friction. However, without stablecoins, crypto must be traded for fiat on exchanges, requiring conversion and bank fees much higher than normal crypto-to-crypto trades, which negates the purpose of these cryptocurrencies. Stablecoins enable people to move their fiat funds to a relatively stable asset even as the BTC or ETH market fluctuates without incurring the steep costs of changing their coins back to fiat. By storing value in stablecoins, users can then get back into the trading game quickly and easily when the market changes or use them for commerce in a fast-growing network of firms that accept such coins as settlement.
The implementation of stablecoins also solves a lot of the regulatory and compliance issues crypto projects face today. It's what the industry needs to scale to the next level and gain broad adoption. Most stablecoins are not securities by definition, as they are pegged to other assets and their buyers do not expect them to appreciate in value (they do pass the famous SEC Howey test). Therefore, stablecoins discourage speculators from buying them just for the purpose of their increase in value.
All eyes are on the speed of scaling and daily use of stable coins to see if they will deliver, fail, be replaced by another killer app, or force all of us to fall into the tech chasm where HODLers will lose the value of their investments.
So far, Ethereum had two great leaps forward
- It invented the smart contract and created hundreds of use cases for cryptocurrencies.
- It enable the ICO revolution, freeing capital to fund and build the cambrian explosion of the crypto revolution.
- With the mass deployment of stablecoins, ETH has the opportunity to scale to the next level of mass adoption, which will include using stablecoins to settle payments and value transfer across Ethereum and other public blockchains.
We all need a stepping stone to mass adoption, and stable coins are a great step forward which garner widespread support. The blockchain industry must do everything in its power to support and encourage widespread utilization of stablecoins if it’s going to thrive against traditional financial institutions.