2. Scale Development
Second, the currency must achieve sufficient scale and liquidity to support meaningful economic activity. It needs sufficient market depth to avoid excessive volatility caused by transactions, and sufficient distribution to ensure that finding counterparties is not too difficult.
Scale brings credibility, network effects, and the necessary liquidity for wider adoption. Major cryptocurrencies like Bitcoin have successfully passed this stage, with a market capitalization of trillions of dollars.
3. Stability Mechanism
Third, the currency must develop stability mechanisms that make it reliable in commerce and contracts. Stability does not mean fixed value, but predictability and resilience under market pressure. This requires technical mechanisms and institutional support.
Many emerging currencies fail at this stage. True stability requires a system that can function well under a wide range of market conditions, without collapsing or requiring external intervention. This means that the currency must have built-in coping mechanisms to cope with both excess and insufficient demand.
4. Economic Utility
Finally, the currency must be truly useful in ordinary economic activities beyond speculation. It must function as a reliable unit of account, medium of exchange, and store of value in a variety of economic settings.
True utility means supporting the full range of financial functions required for a modern economy: efficient payments, reliable contracts, reasonable lending markets, and stable planning cycles. This means that the currency becomes mundane and useful, not just exciting and novel.
Coordination Problems
Few people realize that the later stages require solving fundamental coordination problems that increase in difficulty as the system scales.
Consider the fundamental functions of money, such as providing a last resort function, implementing emergency stabilization measures, or intervening in a crisis. These functions are inherently public goods. They require entities to prioritize system stability over immediate self-interest—taking personal risks for the collective good.
In a decentralized system that is purely driven by self-interest, these critical functions lack structural support. The system may function well in normal times, but break down when stability is critical.
We have seen this fragility repeatedly in the cryptocurrency markets:
During the March 2020 crash, exchanges such as BitMEX had to suspend trading to prevent a liquidation cascade that threatened the entire ecosystem and led to a complete collapse.
On “Black Thursday,” MakerDAO required an emergency governance response and community bailout due to undercollateralization.
LUNA initially survived market stress through massive intervention by well-funded actors, but collapsed when it grew to a size that even these backers could not stabilize.
These examples reveal a profound truth:While cryptocurrencies theoretically advocate trustless systems, their survival in crises has repeatedly relied on discretionary intervention by implicitly trusted actors.
This coordination problem becomes exponentially harder as the system scales. Problems that might be solvable through informal coordination at smaller scales become impossible once the system grows beyond certain thresholds.
Capital Formation Requirement
In addition to stability, a virtuous currency must support capital formation—the lending process that drives economic productivity. This is another fundamental limitation faced by existing cryptocurrencies.
Crypto assets are increasingly used as collateral, but rarely as denomination assets for debt. Few people are willing to borrow in Bitcoin (BTC) or Ethereum (ETH) because their uncertainty creates unmanageable risks for borrowers and lenders.
A fully functional currency must provide a stable unit of account for agreements across time. Whether borrowers are building homes, financing businesses, or developing infrastructure, they need reasonable certainty about the future value of their debt.
Designing a Complete Monetary System
The limitations of existing cryptocurrencies are not temporary problems, but fundamental design constraints. Assets such as Bitcoin and Ethereum are primarily designed for the first two stages of development - attracting value and developing scale.
Their fixed or highly constrained supply models create strong incentives for early adoption and speculation. Such designs excel at launching value and achieving initial scale, but become a liability when stability and utility are needed for wider adoption.
Without mechanisms to adapt to changing economic conditions, provide last resort functionality, or stabilize in crises, these systems remain fundamentally incomplete monetary systems. They work well as ownership ledgers, but struggle to be fully functional currencies.
A Complete Architecture for Good Money
Based on these observations, we can define what is needed for an architecturally complete currency:
Adaptive Supply Mechanism: Good money must be able to expand when demand exceeds supply, and contract when supply exceeds demand, creating natural stabilizing pressures.
Last resort functionality: Good money needs built-in mechanisms to provide liquidity, stability, and intervention in times of market stress without external coordination.
Productive Reserve Utilization: A healthy currency should put its accumulated value to productive use, rather than leaving it idle or dissipated, creating sustainable value for the system.
Lending Market Foundations: A healthy currency must provide the stability necessary for functional lending markets to develop, allowing capital formation without incurring excessive risk.
Transparent Health Indicators: A healthy currency should provide clear indicators of system health, allowing participants to make informed decisions based on fundamental strength rather than simply on market sentiment.
The historical development of traditional monetary systems is not accidental - these features evolved because they are necessary for currencies to operate in diverse economic conditions.
Bridging the Gap
This analysis is not a denial of the achievements of cryptocurrencies. Bitcoin and other cryptocurrencies have achieved remarkable success by successfully completing the first two stages of development - demonstrating that it is possible to launch a non-sovereign monetary system through market incentives.
Their success provides a crucial strategy for the initial stages of money’s evolution. The core insight is that complete monetary systems need to be designed with their eventual mature state in mind while still being able to cope with the early stages of evolution.
Monetary technologies need to accommodate mechanisms for initial growth and speculation while providing a path to stability and utility once sufficient scale is achieved. They need to combine the launch capabilities that make cryptocurrencies successful with adaptive mechanisms that are currently lacking.
Conclusion: The Path to Good Money
The evolution of money is not just a matter of technology, but of solving the coordination problems that increase with scale. Good money must be designed to work throughout its lifecycle—from initial adoption to mature use—with mechanisms to adapt to changing conditions without constant external intervention.
This does not mean returning to a fully centralized system, but rather designing fully architected systems with the mechanisms needed for money to work built in. This means creating money that works not just under optimal conditions, but across a wide range of economic scenarios.
As we continue to develop digital currencies, these insights give us a framework for evaluating their potential. Rather than focusing solely on technical features or short-term price appreciation, we should consider whether a currency has the full architectural elements necessary to function as a good currency throughout its evolution.
The future of money will not belong to those systems with the most advanced technology or the strongest initial growth, but to those that are designed with a comprehensive understanding of how money actually works.
Jasper
Hui Xin
Jixu
Joy
Brian
Aaron