Tomorrow marks the 10th anniversary of the collapse of Lehman Brothers, which triggered the worst global financial crisis since the 1930s.
Thomas Coughlin, CEO of Kinesis Monetary System, a recently launched gold-based stablecoin, argues that the financial services industry is in critical need of the restoration of trust to avoid the creation of another hype bubble, similar to the one which developed within the housing market in 2008. The crisis, he notes, led to a chorus of calls from a range of important stakeholders such as governments, regulators and consumers asking for the industry to become more accountable and transparent.
“Today, innovations in technology are allowing greater levels of accountability than ever before. The advent of blockchain technology, for instance, allows for the creation of digitised, shared and trackable sets of data, allowing not only increased visibility but stored, downloadable ledgers for all stakeholders to see,” he says.
“As we look ahead to the next ten years, the stability of the wealth creation industry is pivotal to the growth of leading world economies. Blockchain technology can provide the trust and transparency the financial services sector needs to ensure complete visibility of transactions to the myriad of stakeholders on a micro-level, broken down to each second of the day.”
Kinesis Money lays claim to an immutable, secure and easily exchangeable, digital record of gold ownership on the blockchain. This ownership can be exchanged as a stablecoin on the blockchain, as fiat currency for everyday transactions or just as digital IOU for real, physical gold. “The $50 million Kinesis has raised so far is testament to the growing confidence in blockchain technology amongst the investment community around the world,” says Coughlin.
Just not viable
Not everyone is a fan of stablecoins, however. They’re a myth, according to Barry Eichengreen, Professor of Economics at the University of Berkeley.
In a recent article for Project Syndicate, he notes that it’s easy to see the appeal of Tether, Basis, Sagacoin etc, where value is rigidly tied to the dollar, the euro, or a basket of national currencies. “Viable monies provide a reliable means of payment, unit of account, and store of value. But conventional cryptocurrencies, such as Bitcoin, trade at wildly fluctuating prices, which means that their purchasing power – their command over goods and services – is highly unstable. Hence they are unattractive as units of account.”
“No grocer in his right mind would price the goods on his shelves in Bitcoin. No worker would want a long-term employment contract that paid her a fixed number of those units,” he continues.
“Furthermore, because their ability to command goods and services in the future similarly fluctuates wildly, cryptocurrencies like Bitcoin are unattractive as a store of value. Cryptocurrencies are also challenged as a means of payment, but leave that aside for the moment.”
Stablecoins purport to solve these problems. “Because their value is stable in terms of dollars or their equivalent, they are attractive as units of account and stores of value. They are not mere vehicles for financial speculation. But this doesn’t mean that they are viable,” writes Eichengreen.