Bitcoin at 10, Coinbase at 6, and Stablecoins Now - Unqualified Opinions #26

where will stability actually be a killer app?

Messari’s Unqualified Opinions #26


  • Zack writes an awesome 10th birthday post for BTC: “Sorry, Bitcoin is still anarchist,” and I feel threatened. Not by anarchy, but by Zack’s writing quality. I mean, this intro is fire: “Bitcoin’s user-identity agnosticism leads some pundits to mistakenly conclude that Bitcoin has evolved into an apolitical and domesticated technology such that its anarchist origins are relevant only as historical context for IBM’s tomato tracker.” Those pundits are mistaken. (And you can bet on seeing more of Zack’s missives in UO features soon.)

  • Coinbase closed another $300 million round yesterday.

  • Bitcoin might be ten, but stablecoins are all the rage. Qiao weighs in with the pros and cons of the latest crypto investment meme.

USD Coin

Dollar-backed stablecoins are all the rage these days.

Coinbase recently announced a partnership with Circle to support USDC, going head to head with Gemini, Paxos, Tether, and at least half a dozen more.

But what is the value proposition of dollar-backed stablecoins really? Why should they gain mass-adoption?

I haven’t seen good answers yet.

In the near term, stablecoins are great for their early backers — speculators. Tether has been useful for rapid settlement between exchanges by traders and arbitrageurs. Algorithmic or collateralized stablecoins can offer equity-like upside to their early backers. Speculation can create some value, by making the market more efficient, but that’s not really a sustainable value proposition.

[TBI Note: Algorithmic stablecoins like Basis offer compelling upside, even if the assumption is that most will fail catastrophically. Investor consensus seems to be “there’s a 10% chance this work, but 90% chance to make money on the way up as the platform scales - even if it later breaks.”]

In their promotional video, Coinbase CTO Balaji explains how dollar-backed stablecoins combine the benefits of dollar stability with the benefits of blockchains:

  • 24/7 access

  • Fast transfer

  • Programmability

  • Micropayment compatibility

While this is technically correct, I don’t believe these benefits alone will lead to the mass adoption of dollar-backed stablecoins.

For one, existing payment rails like Visa, PayPal, and WeChat are already accessible 24/7, practically instant, and fairly programmable. Dollar-backed stablecoins don’t offer drastic improvements on any of these three dimensions.

We know new technologies usually must be “10x better” than existing options in order to gain adoption. A prime is mobile payments. Mobile payments have struggled to gain popularity in the US because they aren’t significantly better than credit cards. Yet China went right from physical cash to mobile payments because of the 10x upgrade.

As for crypto-enabled micropayments, I’ve always been a skeptic.

In a way, micropayments already exist today, in the form of credit. Think about how AWS billing works. They have your card on file, and they charge you monthly based on your usage. There’s merely nominal counterparty risk with Amazon.

Crypto will have a tough time disrupting today’s payments ecosystem stablecoins or no, because today’s payment rails are great.

So, does that mean dollar-backed stablecoins are doomed?

No. I’m still cautiously optimistic because they could have three important value propositions.

  1. They will help bootstrap dapps that involve monetary transfer. No one wants to borrow money on Dharma or to pay an application fee to join a TCR, if the price of Ethereum rise by 10x or falls by 90% within a month.

  2. They could be used for charitable donations. They allow donors to see where their money goes and who benefits.

  3. They could finally help realize the dreams of banking the unbanked and international remittance. We have been talking for years about using Bitcoin for financial inclusion. But Bitcoin’s wild market actions mean that the holder has to bear either the implicit cost of volatility or the explicit cost of trading it for a more stable store of value. Remember, people who don’t have a banking account or receive remittances likely don’t have the luxury, like we do, of allocating a portion of their portfolio in a highly risky asset class.

If you think about it, these three use cases really boil down to three important characteristics of blockchains: interoperability, traceability, and borderlessness.

For the most part, dapp use cases (outside of prediction markets, lotteries, and other gambling-like apps) don’t require much censorship resistance, a major drawback of many of the dollar-backed stablecoins.

Use cases that don’t tend to get censored by a central entity are the most likely ones to help stablecoins take off.


P.S. We’re big fans of Cunningham’s Law at Messari. It’s half the reason we write this newsletter. We love hearing why you think we’re wrong.

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News & Analyses

Messari Compression Algorithm

Content and thoughts from around the web as summarized by the Messari team.

🥇 [Analysis] *Centralized* apps building atop decentralized protocols may be the winning combo – Chris Burniske

Centralized crypto apps that build upon decentralized protocols have:

  • Global capabilities from day one

  • Lower costs due to the on-demand and perfect-competition nature of protocol services

  • More rapid innovation as they build upon others’ open source building blocks

Long term, centralized crypto apps that build atop decentralized infrastructure will find it the key to what allows them to scale beyond incumbents. Meanwhile, pure-play decentralized apps are in danger as they will get outcompeted in response time, customer service, and distribution to the end user. “Decentralize all the things” is a mistake. Decentralize only the things that benefit from decentralization. (Messari | Source)

❓ Xapo founder says crypto is an experiment that may fail

Bitcoin ($BTC) is an intellectual experiment that could take years to prove successful, if it does at all, according to Xapo founder Wences Casares. The Argentine entrepreneur dubbed “Patient Zero” for his role in spurring Silicon Valley’s interest in the cryptocurrency said the probability of success is still greater than failure. (Messari | Source)

Quick Bits (Don't read that, I read it for you)

Choke Points (Exchange News)

  • 🏦 Goldman Sachs has been onboarding a small number of clients to actively trade its bitcoin ($BTC) derivatives product, demonstrating an institutional interest in the space. It is also exploring ways to custody cryptocurrency for customers. However, it is not looking into a similar contract for ether ($ETH). (Messari | Source)

  • 💸 Coincheck, the Japanese cryptocurrency exchange that suffered a $520 million hack in January, has reported a decline in revenue to 315 million yen, about $2.8 million, between July and September, a 66 percent decline compared to the previous quarter. (Messari | Source)

Startup Signals (ICOs, Cryptos, and Startups)

The Powers That Be (Legal/Reg/Policy)

  • 🚫 The UK's Financial Conduct Authority (FCA) said that it would launch a consultation in the first quarter of next year on whether to prohibit the sale of derivatives based on cryptocurrencies to retail investors. (Messari | Source)

Did I miss something?

Send me the link, your twitter handle and your best imitation compression algorithm write up. If I like it, I’ll include your bit next issue (with attribution).

Community Updates

Podcast Recap

🎧 Don’t miss the latest episode of the Messari podcast out! On this pod, Katherine breaks down the latest arbitration case to come out of China's Shenzhen International Court of Arbitration, which determined bitcoin is protected under China’s existing property laws. Additionally, Zack interviews Samson Mow of Blocksteam about sidechains: what they are, what Liquid is, and how its release can impact the average crypto investor. (13 minutes long for your evening commute.) Listen and subscribe— on Apple Podcasts here, Spotify here, and Google play here.

Some other great episodes are #10 (Spencer Bogart on fund performance and tokenization), #9 (Tony Sheng on his writing proecess), #6 (Jake Chervinsky’s primer on federal & State crypto regulators), #4 (Nic Carter on data integrity in crypto), and #8 (Conversations on the ground at CryptoSprings).

Find our podcast series on Apple here, Google Play here, and Spotify here.

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