Detailed explanation: Does stablecoin conform to Hayek’s idea of ​​denationalization of currency?

DAI, etc.) are not legal tender issued by central banks, but "civilian currencies" issued by private companies or decentralized organizations. This in itself has broken the government's monopoly on currency issuance. In Hayek's theory, he clearly stated that the ideal monetary system should be replaced by the state monopoly of issuing competitive currencies issued by private institutions. The emergence of stablecoins marks that private institutions have begun to intervene in the "printing money" business on a large scale in practice - even if these banknotes are in digital form.

2.Competition mechanism and survival of the fittest:Today, the stablecoin market can be described as a hundred flowers blooming and the fittest surviving. Taking the stablecoin anchored by the US dollar as an example, there are many options on the market, such as USDT, USDC, BUSD, DAI, etc. They compete in terms of transparency, stability, liquidity, credit endorsement, etc. The result is obvious: the coins that can maintain stability and integrity win a larger market share, while the coins with major problems will be abandoned by the market. For example, USDT was questioned in its early days due to its opaque information disclosure, and users once turned to the more transparent USDC. The decentralized stablecoin DAI has attracted a user base that prefers decentralization with its censorship resistance and transparency. Conversely, some failed algorithmic stablecoins (such as the UST mentioned above) quickly collapsed and were eliminated from the market because they failed to fulfill their stability promises.

In Hayek's vision, if the issuer of private currency wants to attract users, it must ensure that the purchasing power of its currency is roughly stable, otherwise people will abandon it and switch to more stable options. The competition in the stable currency market precisely reflects this point: customers vote with their feet, and use the currency with stable value and good reputation. This kind of market pressure and constraint is exactly the currency competition mechanism emphasized by Hayek.

3. Currency stability target and price mechanism: The original intention of the design of stable currency is to pursue currency stability, which is highly consistent with Hayek's thought. Hayek believes that the key to currency issuance is to ensure currency stability, not who the issuer is. He once envisioned an ideal privately issued currency called "Ducat", the issuer of which promised to keep its purchasing power stable. Once the market price of Ducat falls below the target, the issuer will use reserves to repurchase; if the price is higher than the target, it will issue more, so as to actively adjust supply and demand to maintain the currency value. This is exactly the same as the operation of many stablecoins today. For example, the issuers of USDT and USDC will increase or decrease the issuance volume, or use reserves for repurchase to make the market price close to 1 US dollar. The decentralized DAI relies on smart contracts and the participation of arbitrageurs to achieve a similar automatic adjustment mechanism. Some algorithmic stablecoins even take this concept to the extreme - the supply rules are completely set by programs, and the circulation volume can be automatically adjusted according to market price changes without human intervention. This idea of ​​"money supply elasticity + price stability target" is exactly the ideal monetary regulation method expounded by Hayek. 4. Decentralization and technology to realize Hayek's ideas: When Hayek proposed the denationalization of currency, the way to achieve it mainly relied on institutional reform and market forces, and technology was not his focus. Today, the emergence of blockchain and smart contracts has given Hayek's ideas the wings of technology. Decentralized stablecoins (such as DAI and RAI) use code and algorithms to ensure the transparency and fairness of money supply and price regulation without the intervention of central institutions. This means that monetary policy can be "depoliticized" to a considerable extent - it is not arbitrarily influenced by politicians or human factors, but is automatically executed according to pre-set rules. I am afraid that even Hayek himself may not have expected this, but it is highly consistent with his pursuit of "letting market laws rather than government decisions determine the value of currency." For example, stablecoins such as RAI try not to anchor any legal currency, but to maintain their own price stability through algorithms in order to become an "independent" value standard. This attempt is essentially an exploration of a stable currency that is truly independent of the national currency, which is, in a sense, the practice of Hayek's vision. 5. Providing options other than sovereign currency: One effect of Hayek's vision is that the emergence of private competitive currencies can be used as a means to fight against irresponsible governments. If the government's reckless printing of money leads to out-of-control inflation, the people can vote with their feet, abandon their own unstable currency, and switch to more reliable private currency. Stablecoins have already shown such signs in reality. For example, in some economies with severe inflation or strict capital controls, people actively choose to hold US dollar stablecoins instead of saving or trading in their own currency. This is equivalent to punishing the unstable domestic monetary policy with market behavior, which also puts pressure on the government.

Hayek once said, "We always get bad money just because private enterprises are not allowed to provide better options." Stablecoins are one of the better options provided by private individuals. When more and more people can conveniently use the globally universal digital dollar, the status of the national currency will be weakened if it is not well managed. This may force those governments to reflect on their monetary policies. In this sense, stablecoins have indeed become a new force to constrain the country's excessive issuance of currency.

Of course, it should be noted that most of the current mainstream stablecoins are still anchored to international reserve currencies such as the US dollar. For some small countries, it is equivalent to using the credit of other countries (the United States) to fight domestic inflation. Nevertheless, for users, what they care about is whether the currency in their hands can maintain its value, increase its value, and be stable and reliable. If the national currency cannot do it, and the privately issued digital dollar can do it, then they will tend to the latter. The emergence of this free choice is a vivid embodiment of the marketization of currency in Hayek's conception.

Four

Although stablecoins realize Hayek’s ideas in many aspects, there are still some areas that do not meet or have not yet been achieved.

1. Pegged to legal tender, not separated from the national monetary system:Most stablecoins (especially the largestUSDT,USDC, etc.) are anchored to legal tender such as the US dollar, which means that they are essentially still based on national currencies. The ultimate goal of Hayek's ideal private currency is to create a currency that is "not manipulated by the government and can maintain stable purchasing power." The stablecoin anchored to the US dollar can only be stable with the US dollar, but cannot get rid of the inflation risk of the US dollar itself. If the dollar depreciates by 10% due to the Fed's policy, the purchasing power of the stablecoins anchored to the dollar will also shrink by 10%. From this perspective, stablecoins are currently more like a "projection" or stand-in of legal tender on the blockchain, and do not provide a completely new value anchoring system. Hayek would rather see privately issued currencies that use a basket of goods or a stable value index as a reference to truly fight inflation, while most of the current stablecoins are just digitized dollars.

In addition, when the stablecoin issuer purchases U.S. debt as reserves, 1USD also supports1 USDTcirculation+1U.S. Treasury bond investment, achieving the "dollar credit multiplier expansion", but strengthening the hegemony of the U.S. dollar. Recently, the United States has promoted stablecoin legislation, and many analysts believe that this is because it can find a new way out for U.S. Treasury bonds.

2. Centralization and trust issues: Although stablecoins are issued by private individuals, many stablecoins are still highly centralized, which is quite different from the decentralized spirit of the crypto world and Hayek's original intention. For example,USDTandUSDCare controlled by a few companies, which can freeze the coins on specific addresses and may also refuse to exchange fiat currencies to certain users due to regulatory requirements. This shows that these stablecoins are not completely independent of government influence-if regulators require them to take measures, the issuers will usually cooperate. This reality has prevented stablecoins from achieving complete "currency denationalization", but instead has made them more like a hybrid of traditional finance and cryptography. Users still need to trust that the issuing company really has sufficient reserves and is operating soundly, otherwise the anchoring of stablecoins may go wrong at any time. In this regard, the private currency system envisioned by Hayek certainly also requires the public's trust in the issuing bank, but he prefers the spontaneous constraints of the market.

In addition, for decentralized stablecoins such as DAI, although it is not directly controlled by a single institution, a considerable part of the collateral portfolio behind it is also centralized assets (such as USDC, etc.). This makes decentralized stablecoins indirectly subject to the influence of centralized assets. Fully algorithmic stablecoins are more fragile. Once market confidence collapses or encounters extreme situations, they will collapse like UST without external support. In general, stablecoins are still not perfect in achieving complete decentralization and gaining user trust. 3. Government supervision and policy impact: Hayek's currency denationalization faces strong regulatory resistance in its actual advancement. Just as governments in history would not easily give up the right to mint coins, today governments and central banks are also paying close attention to and even wary of the development of stablecoins.

As the volume of stablecoins grows, regulators begin to introduce rules to include them in regulatory sandboxes or directly apply electronic currency regulations. For example, Japan passed a law in 2022 to clarify the nature of stablecoins and put them under strict supervision. The United States has also accelerated the process of regulatory legislation for stablecoins. Facebook’s previous attempt to launch a global stablecoin, Libra (later renamed Diem), was strongly sniped because it touched the nerves of the financial sovereignty of various countries, and the project was eventually aborted. This series of events shows that the government will not sit idly by and watch truly large-scale private currencies challenge the status of legal tender. When the influence of stablecoins is still limited to the crypto circle, it may not be a big problem; but once it tries to move towards the mainstream payment system and become a currency used by the public in daily life, the authorities often intervene for financial stability and monetary sovereignty. This reality makes the development of stablecoins affected by policy uncertainty, and it is difficult to evolve completely according to the logic of the free market. For example, if a country strictly prohibits its residents from holding or trading stablecoins, then no matter how good a stablecoin is, it will be difficult to replace legal tender in that market. In reality, if stablecoins want to promote currency denationalization, they must also deal with legal obstacles, which is also a problem that Hayek's theory encounters in actual implementation. 4. Not yet a truly universal "currency": Although stablecoins are widely used in the crypto community, they are far from becoming a true substitute for legal tender in terms of the entire economic system. Hayek envisioned that private currencies would become a medium of exchange and a means of storing value that is generally accepted by the public. At present, stablecoins are more used in digital asset transactions and cross-border transfers, and are not yet mainstream in daily consumption and wage calculation. Most people still use their own legal tender to buy and sell goods, and use legal tender units for accounting. Even in the crypto circle, stablecoins mainly serve as digital substitutes for the US dollar, used for switching between assets or hedging operations. It will take time and wider acceptance to achieve the scene of "multiple currencies in the same region" as Hayek said.

Some economists point out that people also have "inertia" and convenience considerations in currency selection, and may not frequently switch between different currencies. Unless there are serious problems with the original legal tender (such as hyperinflation), the public may not have enough motivation to switch to a new currency. This is why stablecoins are currently used more to meet specific needs (such as speeding up and reducing fees for cross-border transfers, hedging investments, etc.), rather than fully replacing sovereign currencies. In other words, stablecoins have not yet "broken the circle" and are still far from the monetary revolution envisioned by Hayek. 5. Centralization risk of stablecoins: Hayek's theory is based on the assumption that full competition can bring the best results, but in reality, as a special network product, the result of competition may be winner-takes-all or oligopoly-divides the market. Now in the stablecoin market, USDT and USDC occupy an absolute dominant position. Once one of them encounters extreme risks (such as credit bankruptcy or technical failure), it may cause a major impact on the entire crypto-financial system. This reminds us that although private currency competition is good, we also need to guard against systemic risks brought about by centralization. Hayek certainly realized that reputable issuers would stand out, but he probably did not expect that in the digital age, capital and network effects would allow the winning currency to grow to such an extent in the short term. Therefore, how to prevent the moral hazard and bankruptcy risk of currency issuers themselves is also a realistic issue. The development of stablecoins needs to find a balance between the ideal of the free market and the reality of financial stability.

Five

Although some commodity-anchored stablecoins attempt to replace the fiat currency anchor with gold (such asPAXG), crude oil or a combination of commodities, which is closer to Hayek's ideal of "non-sovereign value scale", they have also fallen into multiple dilemmas in practice.

First, there is the problem caused by the volatility of the price itself. Taking crude oil as an example, it is common for the price to rise or fall by 30% in the futures market in one day. This fluctuation directly impacts the currency value anchoring mechanism of commodity stablecoins. The goal of stablecoins is price stability, and the anchor itself is greatly unstable, which conflicts with the logic of "selecting stable currencies through market competition" envisioned by Hayek. The second is the time dislocation of liquidation and circulation. For example, the gold behind PAXG is actually held in the London gold vault, which means that the transaction of digital tokens is real-time, but the physical liquidation has a significant delay. During the Silicon Valley banking crisis in 2023, PAXG’s price once exceeded spot gold by 7% due to a large number of users rushing to redeem in a short period of time, which exposed the structural problem that physical assets are difficult to support real-time circulation on the chain. The second is the problem of centralized dependence. Gold like PAXG is kept by a single financial institution, which is essentially an extension of the traditional financial architecture. This design that relies heavily on central custody is obviously far from the concept of "decentralization" of blockchain. Finally, there are the practical constraints of regulatory intervention. For example, the pricing mechanism of crude oil futures is mainly dominated by the Commodity Futures Trading Commission (CFTC), which means that even if the stablecoin is ostensibly an anchored commodity, its pricing basis is still dominated by state power to some extent, which is also inconsistent with Hayek's idea of ​​getting rid of state intervention.

Even "pure crypto-anchored" stablecoins like RAIhave not been able to completely get rid of the problem. RAIis not anchored to the US dollar, but maintains its own price stability through an algorithmic mechanism. However,in 2021, its price once deviated from its target price by -12%, indicating that its short-term stability is still significantly behind the mainstream US dollar stablecoin. These realities show that Hayek's assumption that "free competition can naturally give rise to stable currencies" still needs to face challenges in technology, market and system.

To sum up, stablecoins have realized Hayek's idea of ​​denationalization of currency to a certain extent: it makes private currency issuance a reality, introduces a market competition mechanism, prompts issuers to pursue currency stability to win users, uses technical means to partially bypass the government's direct control over currency, and provides people with new options other than legal currency. These are all strong confirmations of Hayek's ideas. For this reason, many comments call Hayek the "prophet" of cryptocurrency, and believe that the emergence of Bitcoin and stablecoins has the shadow of his theory.

However, the current stablecoins do not perfectly meet Hayek's blueprint. Most stablecoins still rely on the value of national legal currencies and lack independence; centralized issuance and regulatory intervention prevent them from completely getting rid of government influence; their scope of use is also limited to specific scenarios. It can be said that stablecoins are a small step towards Hayek's ideal, but there is still a long way to go before the complete "denationalization of currency".

Looking to the future, as technology develops and concepts change, we may see further innovative forms of stablecoins, or countries may relax their control over private currencies and allow more competitive experiments. It is also possible that the introduction of central bank digital currencies (CBDCs) will replace or squeeze existing stablecoins and reshape the landscape of currency competition. In any case, Hayek's ideas reveal the underlying logic of monetary evolution: the money supply can be optimized through market competition. Stablecoins are just a new chapter in this grand process.