• The U.S. government is backing a stablecoin, USDC, with 8% of its collateral reserves.
• Circle CEO Jeremy Allaire discussed emergency measures taken to prevent USDC from depegging from the U.S. dollar and explored the possibility of turning stablecoins into “straight-through government obligation money”.
• Arthur Hayes proposed a new stablecoin called NakaDollar (NUSD) that would be backed by bitcoin and bitcoin derivatives in order to provide stability to traders and investors.
Government Backs Stablecoin
The U.S Treasury Department, Federal Reserve, and FDIC recently announced plans to backstop all deposits at two failed banks while also pledging to secure at least 8% of the collateral for the USDC stablecoin issued by Circle. This bailout benefited Circle as they worked overtime over the weekend when USDC depegged from the U.S dollar in order for them to take emergency measures and game theorize about spreading out its cash in order turn stablecoins into “straight-through government obligation money” according to Circle CEO Jeremy Allaire’s recent “Bankless” episode .
Arthur Hayes, co-founder of crypto exchange BitMEX has proposed NakaDollar (NUSD), a stablecoin backed by Bitcoin (BTC) and Bitcoin derivatives which could theoretically become deeply liquid and attractive for traders due to it being backed by BTC or other crypto assets providing stability if accepted and used by investors or crypto exchanges according to “The Hash” panel discussion on the proposal and future of the stablecoin market.
Benefits of Government Backed Stablecoins
The benefits of having a government back a Stablecoin are manyfold including but not limited too ensuring that USD based contracts remain reliable even when unexpected events occur such as bank failures, improving liquidity due to more assuredness of capital being available when needed, as well as allowing users access more easily to their funds without needing multiple banks thus reducing time spent on paperwork etc.. Additionally there is potential for increased trust among users who may feel safer knowing their money is going through an entity regulated by government channels rather than through one that isn’t regulated at all or just lightly so is seen as riskier or less trustworthy than one regulated heavily like USDC with 8% collateral reserves secured by three federal entities such as Treasury Department , Federal Reserve , FDIC.
Risks Involved With Government Backed Stablecoins
One major risk involved with having governments back a Stablecoin could be political interference where governments may start interfering with how these coins are used leading people away from using them due either fear of regulation or simply not wanting their activity monitored especially if they are using them for activities which could potentially be deemed illegal in some countries such as gambling online etc.. Additionally another risk might be that those governing bodies backing these coins may start pushing certain agendas onto users who rely on them so it’s important that people who use these coins understand what type of power those governing bodies have over them before investing any significant amount money into these types of coins and make sure they fully understand what type policies will apply should anything go wrong during transactions involving these coins .
In conclusion while there are some risks involved when relying on governments backed Stablecoins there are also plenty benefits associated with them such as increased liquidity due assuredness capital availability , reduced paperwork times associated with multiple bank accounts , potential increase trust amongst users since now their money is going through an entity highly regulated instead unregulated ones which can seen riskier thus making it easier for people access funds even during unexpected events like bank failures .