And such a stablecoin exists: https://makerdao.com/en/dai/

It uses collateral, lending and a careful incentive setup to maintain close to 1:1 parity with USD. I haven't looked into the detail, but it seems to have a decent record (of stability).

The first is censorship resistance. And I can assure you that however in the world you set up something backed by a fiat, its controlling government can step in and seize your collateral if and when it pleases and then you're screwed. But you can certainly come up with all sorts of fancy legal speak and marketing pitches to argue otherwise which makerdao is basically doing.

The second is protection from currency manipulation and stable coins solve nothing on that front, but let's assume for the sake of argumentation that people interested in stable coins are aware of that.

hmm -- the collateral in this case is ether. So, unless you feel the US govt can step in and seize all ether in the world, this statement seems unlikely to be true.

What happens if eth tanks in value? Now you'll have $0.10 of eth backing $1 worth of stablecoin. Also, if it's backed by eth, who has custody? If it's the controlling entity, they can refuse to redeem your stablecoin for eth.

1. ETH has tanked in value by basically that large of a drop since DAI has been in existence, and it's held its peg. Recently, I believe some of the parameters that control DAI's stability did cause people some concern given how high they went, but so far, DAI has been remarkably resilient.

2. I believe the ETH is locked in smart contracts, so nobody has custody (although it may be vulnerable to bugs). Not 100% sure though.

3. DAI is moving to a multi-collateral model, so it can be backed by ETH, BTC, other stable coins that are backed by fiat in various jurisdictions, other coins that are backed by gold reserves, etc. That seems like it will make the model much more resistant to the attack that was suggested above -- i.e. that a single government could interfere.

I'm highly skeptical that this actually works.

I'm also not convinced it will work forever, but it has been remarkably resilient to date, even in the presence of the value of the collateral (ETH) dropping 90+% in that time frame.

I still don't see much point given that there are now stablecoins pegged exactly to the USD with audited bank reserves.

In that sense it's like a regular bank with cash... they know their own customers but they don't know where that cash has been.

With a blockchain there is the potential for tainting coins, but you have to know that a particular address was associated with a crime.

In my view, on the privacy/censorship spectrum, a pegged stablecoin is far closer to cash overall than to PayPay or Venmo.

Regulators kind of have to either accept that reality or ban pegged stablecoins entirely. There isn't really an intermediate option. At this point it seems like the genie is already out of the bottle and they aren't like to ban them entirely.

Not really.

Consider an archetypal stablecoin, like Tether or Gemini Dollars. Only liquidity providers at the edge of the payment network need to actually have a relationship with the backing company, like Tether or Gemini.

That's because payment flow is actually tracked by a public, decentralized, pseudonymous blockchain.

So an archetypal stablecoin is basically equivalent to an imaginary "benevolent PayPal" that never suspends or freezes anyone's account and doesn't charge high fees or allow clawbacks; it just works.

That's a marginal improvement over the current state of the art. Maybe just barely enough to gain traction and mass adoption.

After all, it allows reasonably fast international payments to anyone, anywhere.

If Facebook Dollars are implemented in this way, it's promising.

On the other hand, if Facebook Dollars require you to use a Facebook account to send and receive, it's just a re-implementation of venmo or PayPal.

The main thing to keep in mind with stablecoins is that your coins are only worth something as long as the producer (Tether/Gemini/Facebook/etc) is willing to give you actual hard currency for those coins. This gives the stablecoin "bank" total control over the system regardless of how the cryptocurrency is set up. (Similar issues do apply for private stablecoins, but the freezing/suspending will occur per an individual user trying to redeem their currency).

> Tether and Gemini can freeze/suspend anybody's account at any time for any reason with practically no effort if they wanted to.

But only liquidity providers at the edge of the payment network even need to have "accounts" with Tether or Gemini.

> You can even track your blacklisted token amounts through middlemen and mixers.

Yes, coins could be blacklisted, but it's not likely that they would be unless it came to be publicly known that they were associated with a crime.

> The main thing to keep in mind with stablecoins is that your coins are only worth something as long as the producer (Tether/Gemini/Facebook/etc) is willing to give you actual hard currency for those coins.

They don't need to give me hard currency. They just need to give somebody hard currency, and then, only if and when people actually want to redeem cash for the coins (which should be the exception, not the rule).

I don't need to have a relationship with Gemini to spend their coins (whether to get cash out or not) since I can sell the coins for about $1 to someone else who can do that.

This Facebook experiment may indeed just be a Venmo that's connected into their tech+business ecosystem. However, the sheer size of their user base should at least give you pause when claiming this experiment is completely uninteresting.