Law Decoded: Cents and stability, Nov. 20–27

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Stablecoins and CBDCs and their related issues of privacy and surveillance lead this week’s Law Decoded.

As many of you were certainly following in real time, a bull market gave way to a bloodbath yesterday, which happened to be Thanksgiving in the U.S. Personally, I’ve never thought that Bitcoin’s price was any sort of proof of its value proposition, but for many its retreat yesterday certainly dashed many a planned gloat to family members more receptive to massive gains than concepts like censorship resistance.

But obviously volatility is part of the game with cryptocurrencies. One of the more prominent solutions to this problem has been the rise of stablecoins, especially following the market’s swan dive at the beginning of 2018. Stablecoins typically derive their value from fiat reserves held at banks or, in the case of, say, Paxos Gold, in vaults.

For the crypto faithful, those pegs obviously pose a centralization concern, not to mention the indignity of depending on fiat currencies like the U.S. dollar. But for the average user, most of whose bills and expenses are still denominated in dollars, or euros, or yuan, stability is what they are looking for. Stability is actually a lot of what the mandate for currency consists of. (Aside: Look how many prepositions I can end sentences with).

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At the same time, the regulatory mechanisms for ensuring stability in tokens are still in development. It was only this year that federal banks in the U.S. got clear authorization to house reserves for stablecoins. Many such coins remain unaccountable. But, ultimately, the recent surge in interest in central bank digital currencies, or CBDCs, comes from an interest in replicating the effectiveness of such tokens.

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