By late 2013, it was clear crypto assets would be the future of finance. It was the first time bitcoin crossed $1,000. To the cypherpunks’ chagrin, central banks around the world began publishing warnings to curb the “decentralized genie” threatening the stability of the familiar system. First they ignore you, then they fight.
Bitcoin’s rally stopped short due to a lack of trust and high volatility, rather than any state intervention. That was when people realized crypto assets needed a bridge to financial world, based on our own terms. This was the impetus to create “stable cryptocurrencies,” or stablecoins.
This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Sasha Ivanov is the founder of Waves, a blockchain platform.
From that moment, two different approaches to stabilize crypto asset prices began to develop simultaneously: fiat-backed stable assets and algorithmic stablecoins. While central banks perceived cryptocurrencies as a potential threat to the stability of the financial system and their monopoly in money issuance, it wasn’t until recently that they began to research, develop and experiment their own digital currency (CBDC) alternatives.
While the tension between stablecoins and CBDCs has not come to a head, it is still present to the perceptive. Just look at how China, the European Union and the U.S. responded to the libra (now diem) stablecoin project, for instance. These asset groups, fiat-pegged and algorithmic stablecoins, will eventually compete directly with CBDCs to try to squeeze each other out of the market.