Thread by @RyanWatkins_

Ethereum is an emerging digital economy in the early stages of a multi-decade economic boom.

The Problem?

Dollar-pegged stablecoins dominate Ethereum and the dollar is controlled by the Federal Reserve...

But what if we had stablecoins not pegged to fiat currencies at all?

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This is the idea at the heart of the latest wave of decentralized stablecoins.

These novel projects offer a radical opportunity for Ethereum’s monetary system to achieve stability while eliminating dependence on fiat currencies.
messari.io/article/the-ar…

It's not surprising that Ethereum has dollarized.

Many developing economies dollarize due to monetary instability.

Stablecoins allow Ethereum to overcome ETH’s volatility, which would otherwise handicap economic growth.

The stability dollar-pegged stablecoins have brought has enabled Ethereum to attract more capital into its economy as well as boost economic growth.

Stablecoins have been a key enabler of Ethereum’s booming DeFi ecosystem.

But it’s come with trade-offs.

https://twitter.com/ryanwatkins_/status/1351349824961077249

The flipside of dollarization is that by welcoming stablecoins into its economy, Ethereum has given up its monetary sovereignty and opened itself up to external dependencies that introduce systemic risk.

In practice stablecoin protocols are more like currency boards than central banks.

All their monetary policy decisions are subordinated to maintaining their fixed exchange rate targets with the dollar.

Furthermore the dollar peg also introduces regulatory risk that has the potential to shake the foundations of DeFi.

Playing with the dollar invites the US government to take action.

Look no further than the STABLE act for indication on what worse case scenario could look like.

So what does an independent Ethereum monetary system look like?

In many ways similar to the dollar under the gold standard with a free banking system.

(h/t @Fiskantes)
econlib.org/library/Featur…

At the core of non pegged stablecoins is collateral, primarily ETH, that ultimately backs their value.

$RAI, $FLOAT, and $OHM each have different mechanisms to stabilize themselves, target prices, and ways of using their collateral.

But that’s the common thread.

Once Ethereum has independent stable currencies, a truly independent banking system can emerge on Ethereum.

Non pegged stablecoins can be put to work in DeFi money markets and yield aggregators which effectively turn those non pegged stablecoins into banking deposits.

But how do these non pegged stablecoins work really?

Will they even work, let alone be adopted?

In our second of two reports on central banking on blockchains we dive deep into $RAI, $FLOAT, and $OHM and peek into the future of money on Ethereum.

messari.io/article/the-ar…

Once upon a time we wanted independent currencies for a decentralized financial system.

Instead we got dollars on a blockchain.

Non pegged stablecoins may seem like a far-out experiment without a clear use case now.

But they may also be the best bet this industry has on creating non-sovereign stable cryptocurrencies.

Now entering, the Avant-Garde of decentralized stablecoins.