The American banking crisis, from the collapse of Silvergate to Silicon Valley Bank, reveals how heavily regulated, dollar-backed stablecoins like USDC aren’t as stable as crypto advocates suggest.
, regulatory crackdowns and banking catastrophes have exposed the crypto industry’s central players to be dangerously overleveraged.After this disaster, a seemingly coordinated attack by American lawmakers, dubbed “chokepoint 2.0” by crypto advocates, is systematically debanking the cryptocurrency industry. In March 2023 alone the crypto industry lost three of the biggest banking service providers, Signature Bank, SVB, and Silvergate.
The few banks who dare to dip their toes in Web3 are being scrutinized and advised against serving the crypto industry. Compliant players and their banking partners are subject to continuous regulatory pressure, while trail-blazers that rely on regulatory arbitrage don’t offer a scalable nor sustainable option either. The most successful stablecoins today are simply not good enough to reach the market value of an industrialized nation’s fiat currency.
If any cryptocurrency, beyond bitcoin, is ever to offer users the ability to hedge against dollar instability, it will need to decouple from fiat currency almost entirely. There are already algorithmic stablecoins andthat only use bitcoin and/or ether to mint and redeem stablecoins on demand for any currency . If the crypto ecosystem is to become resilient to Silicon Valley’s banking crisis, then crypto companies may need to start bootstrapping liquidity with native solutions.
In the short term, stablecoins like USDC are not actually any more stable than the banking services that enable them.
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