Stablecoins’ Quest for Money: Who Is Afraid of Credit?

Abstract

Classifying stablecoins into three different categories, we will see that fiat-backed stablecoins can complement today's monetary architecture by building a novel technological layer on top of the old. Non-backed stablecoins, also known as algorithmic stablecoins, in contrast, use outdated monetarist ideas to achieve price stability and are unlikely to have meaningful impact from an economic perspective. Thirdly, debt-backed stablecoins, typically collateralized with other crypto assets, come closest to achieving some form of moneyness. Coins in this category will have to increase debt universality and linkages to (digital) economic activity to gain wider acceptance - a path that is necessarily accompanied with increasing need for regulatory compliance.

This chapter concludes by providing an outlook with respect to debt-backed stablecoins collateralized with tokenized real-world-assets.

JEL Classification: E32, E51, E64, G21