Dead zone | Hayek World

Fiat-backed: stablecoins pegged to a fiat currency are directly influenced by the value of their centrally controlled fiat counterpart and can be inflated into infinity. In other words, as long as DeFi (decentralized finance) depends on CeFi (centralized finance) stablecoins, DeFi depends on traditional banking and regular finance. More importantly, the reason for all the monetary scarcity and insolvency is that the financial system used by national economies worldwide is actually founded on debt with the ongoing ecological disaster and the ever-growing socio-economic imbalances within it. Stablecoins backed by inflationary money lack therefore the ability to serve the world's best interests as well as the competitiveness needed to fight the growing instability and inequality in the world as a problem can never be solved by its cause or side effects, nor on the same level that it was created. Moreover, cryptocurrencies in general aim to change the world’s debt-based fiat piramid scheme that continuously redistributes and funnels the real wealth of the world to the top of the piramid by inflating the currency supply through the proces of money creation, deficit spending, bailouts, quantative easing etc. This in contrast to the original intended purpose of Central Bank Digital Currencies attempting to curb 'unregulated' digital currencies.

Crypto-backed: stablecoins pegged to other cryptocurrencies are subject to wild price swings, not capital efficient, complex in nature and vulnerable to manipulation as crypto whales - big players in crypto space mainly institutional investors, investment firms, banks and insurance companies - manipulate the crypto market in order to accumulate more wealth and gain more power as their funds allow them to inflate and deflate prices of crypto investment assets, thereby influencing and affecting the market in general.

Commodity-backed: stablecoins pegged to hard centralized assets can’t simply dictate the price and serve as collateral for the economy’s supply of money as the economy is too big, meaning that any collateral in whatever form can't offer the flexibility needed for 100 percent coverage, whether national or worldwide. And any less than 100 percent cover, risk is introduced and can therefore never be excluded. This is because the economy is bigger and expands faster than any amount of resources available in the world to back the money supply. Any collateral out there is always just a fraction and only a part of its economy. It’s not even a question here, that the economy and thereby the money supply will eventually outgrow any collateral obligation as it already did. It has been that way for a long time and will continue to be so in the future. That's why, among other reasons, in 1971 the gold guarantee for the dollar was lifted. In addition to this, tying up any form of liquidity or safe and usable assets to stablecoins no matter what these assets are, means these will not be available for other uses. Also consider the costs and risk involved related to transport, storage, safekeeping, verification procedures, supervision, monitoring, independent control and audits.

Algorithmic: stablecoins pegged to an algorithm are risky and less fungible. No physical nor reference assets that provide their value nor enable to maintain or support it, at all. You simply can’t rely on an algorithm as it is considered insecure and doesn’t always work as intended due to bugs affecting it.