HBD: Argentina Is Showing The Path For Stablecoins

in LeoFinance13 days ago

For years we were told how Bitcoin is the future of money and it is going to replace the US dollar as the medium of exchange. This was something espoused by Bitcoin Maxis like Michael Saylor. Whatever the problem, have no fear, bitcoin would fix it.

Unfortunately, this is not how the real world operates. There is theory and reality. Sadly, many, like economists, operate in the world of theory, espousing ideas they think should happen. Markets tend to have other ideas.


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Argentina Showing The Path For Cryptocurrency

The people of Argentina are intimately familiar with the destruction caused by inflation. While many take to YouTube to complain about a 3% or 6% inflation rate, this country is actually hyperinflating. Here is what the population of Argentina is dealing with:

Argentina’s inflation rate hit a 32-year high of 211.4% in 2023, according to the latest Jan. 11 figures from the country’s statistics agency, the National Institute of Statistics and Censuses.

That will get your attention.

Once again, the Maxis will tell us bitcoin is the solution. They also take to YouTube, making videos about all the magical natures of BTC.

Those who are dealing with the issue in Argentina, however, tell a different story.

Argentines are using black market exchanges, known locally as “crypto caves,” to buy United States dollar stablecoins in a bid to escape strict currency controls and the triple-digit inflation of the Argentine peso. Argentines are also reportedly shunning Bitcoin (BTC) due to perceived volatility.

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To clarify, it isn't perceived volatility. Bitcoin is a volatile asset. There is no way to deny this. Simply look at the price action over the last couple month. In fact, go back to 2022 and focus upon the high and low. It went from $66K down to $15K and now is near $50K.

That is not the epitome of price stability, which is what the Argentinians are looking for.

Fortunately, for them, they found their solution.

USD Denominated Stablecoins

The path forward for cryptocurrency, at least as a medium of exchange, is stablecoins. Specifically, we have to focus upon USD denominated one such as the Hive Backed Dollar (HBD). While others are receiving a lot more attention (and activity), we have to consider whether the solution is asset backed or algorithmic stablecoins.

It is naturally up for dispute at this point.

Nevertheless, it is unlikely the solution to government intrusion, overreach, and general incompetence is in an asset that overseen by these same entities. That is the wolf watching the hen house.

That aside, we can conclude that a simple premise is, once again, being proven by Argentina. When it comes to medium of exchange, price stability is the most crucial.

Therefore, if one is seeking this out, nothing tops the US dollar. That is an unpopular opinion among many circles but, again, we are dealing with reality, not the theoretical world.

The US dollar has the deepest markets, the most economic productivity tied to it and the largest reach. It is truly an international currency. The only rival is the EURO which is really nothing more than a regional currency.

If we want to use a compute viewpoint, the network effect is with the dollar. It is the Facebook of the monetary world. This only enhances it price stability as the reach expands.

Dollar Eating Everything Else

What is likely to happen, due to what was just expressed, is the dollar ends up eating all other currencies, at least by those who can exercise choice.

Basically, people are going to forgo any currency that has more volatility than the US dollar. That is a key point to comprehend. Anything that has more volatility than the USD will be shunned (note what is happening in Argentina). This is true whether it is the peso, rial, or bitcoin.

The second factor in this is the money supply. Here we have an interesting development taking place.

At the moment, the commercial banking system is responsible for the expansion of the money supply. This is all part of the central bank system. Anything that touches a bank is still tied to this system.

With asset backed stablecoins, they tend to be backed by a combination of US dollars, i.e. cash, and US Treasuries. In other words, it is still integrated into the system.

An algorithmic stablecoin used the USD as the unit of account yet has no dollars involved. This means that expansion of the money supply in this realm is actually outside the central banking system. We get an ironic twist in that growth here actually adds price stability through network effects, further diminishing the impact of the Federal Reserve.

The eventual outcome is that you have a US dollar that has little to do with the United States, the Federal Reserve, or bank notes. In fact, it operates completely outside the banking system.

What we have is a measurement. The dollar, the currency, is really no more. Instead, it is akin to an ounce or kilometer; nothing more than an unit of account.

The price stability is the goal. That is the problem for bitcoin. Even the Maxis are all about "price go up". When it comes to medium of exchange, this is fatal since price also can go down.

Ask the people in Argentina what they think about price fluctuations due to currency volatility.

They are showing us how those who are drastically affected are responding to the situation.


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211.4% is really deadly . Because such memories lead to the destruction of a country and put the people of that country in great danger. Hopefully the country can be lifted from such problems through stablecoins.

It is dire. Turkey has similar issues.

Agree with you. It's actually already the case that the nature of the world economic system has created stability in the USD, I still recall two years ago when the dollar was in high demand as a way of curbing inflation outside of the USA, for a short time it was stronger than the Euro. Despite all of the poor Governance and Policy in the USA, the petro-dollar has remained a staple of the entire world economic system, with the international markets even able to overcome the decisions of the US Government to maintain Stability. I think the case of Argentina and other countries experiencing hyper inflation (Venezuela comes to mind) are interesting to watch how they will continue to navigate the storm in the Web3 economy.

the petro-dollar has remained a staple of the entire world economic system

This is mythology too, an idea promoted by gold bugs as to why the USD have value.

The reality is the USD is strong because it has the most economic activity tied to it in the history of any currency in the world. It is also the core of the international banking and financial system.

There is roughly $8 billion in oil traded each day; there is $4.5T-$5T in funding through repo daily.

Math says the petrodollar is a total myth.

I think gradually, some nations will start setting the needed standard for others to follow and I love how Argentina is starting that

I say something similar few time ago. For undevelopment countries, the USD (and stablecoins) are a solution to inflation. Inside USA you can buy shares, gold, Bitcoin or whatever you want.

https://inleo.io/yecier/dollar-a-tool-for-protect-wealth

That is one of the keys. Once you get USD, you can buy a lot of different things. This doesnt apply to stablecoins since they are not in the wider economy but one we have synthetic assets and things like that, we will see a shift.

If an algorithmic stablecoin can be pegged to anything, why are most of them pegged to the value of the US dollar which also suffers from inflation rather than to a unit of the cost of living, for example to the price of a basket of groceries?

Asset backed stablecoins have a calming effect on the mind and some of them have their governance and minting distributed to multiple parties making their operation less vulnerable for takeovers but still the deposited backing asset is always something rather physical which could be seized by force. Algorithmic stablecoins don't have this problem if they are implemented in a manner to prevent such actions.

for example to the price of a basket of groceries?

And what happens if there is a drought and the price of groceries skyrocket due to food shortages.

The idea that inflation and price increases are the same is mistaken. Prices can go up or down for a variety of reasons.

It is another fallacy that the economics profession pushed on people misleading them into believe every time there are price increases it is due to "money printing".

Asset backed stablecoins have a calming effect on the mind and some of them have their governance and minting distributed to multiple parties making their operation less vulnerable for takeovers but still the deposited backing asset is always something rather physical which could be seized by force.

It is even worse. The asset backed are tied to the banking system through their backing (either cash or treasuries). This means we are not dealing with a separation.

So algos, in my view, are the only way to get free of it.

And what happens if there is a drought and the price of groceries skyrocket due to food shortages.

Your balance buys the same amount of food as before keeping your stomach equally filled and satisfied and keep that aspect of your living standard stable. This was a rough example which could be improved by adding indices of other living expenses into the basket.

The idea that inflation and price increases are the same is mistaken. Prices can go up or down for a variety of reasons.

I think the definition of the word 'inflation' varies by the topic and the user. In some cases inflation seems to mean the loss of purchasing power or at least that's what they would want to protect against.

I would agree the definition has changed.

However, what is the loss of purchasing power happens when the currency is actually deflating i.e banks are not lending.

The business cycle always means that the loss is seen during the expansion and the reverse after the peak is reached.

That is the same regardless of what form of money is used.

This level of understanding is far above the norm, and it would be good if others understood what you make so clear in the his post.

Volatility is the enemy or opposite of stability. Which is what people seek in a unit of exchange.

I do understand that you need to own assets not dollars during periods of high inflation to preserve the buying power of your labor, which is one of the Bitcoin maxis claims. And Which is true longterm for bitcoin, but it’s day to day volatility makes it an unfit medium of exchange.

I agree that algorhythmic stables are the solution to usd due to political issues, freezing and seizure issues, which make it undesirable as a global currency, and a stimulus for a BRICS currency, but all must realize the huge network effect and first mover effect of usd which makes BRICS currency theoretically viable but realistically not possible. In the future maybe.

Your idea of the dollar becoming a unit of account is an amazing one and certainly one version of the worlds future.

Bravo

I do understand that you need to own assets not dollars during periods of high inflation to preserve the buying power of your labor,

It is because inflation is misunderstood.

What is the inflation rate of bitcoin? Hive? Ethereum? People answer that with 1%, 5% or whatever. It is the expansion of the number of units on a yearly basis.

Notice how it has nothing to do with prices. People think price increases mean "money printing" is taking place. How did we hear about inflation over the last 4 years and it due to the money printing.

Yet every earnings call for two years, CEOs talked about supply chain shortages. Does anything think shutting down the global economy, killing supply of many thing, had anything to do with it?

No they simply say it is money printing, once again proving how economists brainwashed them into being completely naive.

I agree it is an often overlooked source of price inflation; supply and demand. A economic fact which transcends politics, borders, even oceans with the globally linked economy.
I think they want us to fixate on the money printing because the masses got very small drops of it, as if to excuse the governments role in shutting down the global economy and causing all the supply chain problems with resultant increased prices. Perhaps this increased prices more than money printing?
I suppose if we had the numbers we could compare them. Do you have the numbers or indirect markers of the impact of supply chain damage’s contribution to inflation?

don't forget about Venezuela too, for several years now the USDT has been saving us when it comes to exchanging and sending remittances to the country.

Certainly Argentina is not the only place in the world with this. We see many countries with unstable currencies being open to alternative stablecoins.

HBD is making an impact in that area too.

unfortunately in argentina we live like monkeys, your opinion it doesnt matter and i am rigth that will say you a tipical argentinian but you are rigth and we have so much inflation made it by the socialist and left-handed or called "Zurdos" taken the money from worker people to spend it in socials plans for the lazies. I always recomend to the argentinians use Hive but they want an esay work and not trying something different so close mind, i am sorry if i sound like a exaggerated but it is the truth :D

Certainly there are problems bigger than just the currency.

And you are right, almost 100 years of Peron has turned Argentina from the second strongest economy in the Western hemisphere into a shit show.

dude we almost live like the western, the thiefs can kill people and be free the next day crossing the principal door while if the typical citizen kill a thief is condemned by all; now with Milei i have more hope of live in a new country with more opportunities

I actually just read this Argentina article. If I remember it right, they prefer USDT, and are transacting over Tron. This is definitely a real world scenario on what the future use of crypto can be.

I would think so. Tron isnt a stablecoin hence it brings its own price instability.

It is the same as with bitcoin. These are not medium of exchange currencies. That is why I call them value capture. Their properties are more like stocks or shares in a partnership agreement.

Oh, I wasn't talking about Tron the crypto, it was the network. Here is the part in the article:

image.png

I'm not sure if they still need to convert to the TRON crypto, but according to them the transaction costs are cheaper there. I wonder if they've tried Hive, and if it is cheaper, since we don't have extra fees.

It is really a great news to see that daily, countries like Argentina is fighting to create the space for massive adoption which is good to see

Argentines have been struggling with inflation for a very long time. Stablecoins are just one of that many tools used in that struggle. Not very different from D-marks being exchanged on the streets of inflation-plagued Yugoslavia in late 1980s.

The scenario is not novel. We see it repeated over and over.

Turkey is suffering a great deal now also.

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the number are no doubt very frightening. The stable coin has the capability but the problem cones when we talked about the adoption. The government itself are big threat