Thinking About Stablecoin Governance

I was heading home from my old classmate’s wedding this weekend, taking the bus and then the train – which is usually a good time to reflect and ponder about the state of our world. So far one interesting topic has been on stable coins. Link to YCombinator here for the inspiration for this article, https://www.ycombinator.com/rfs#stablecoin-finance

In this article, let’s think about government issued stablecoin instead of the traditional company operated stablecoins as it seems to be a likely outcome given the risk of stablecoin decoupling from the base currency it is tracking (think Luna).

In this case, stablecoin (issuance) raises some important questions about who gets to make decisions about their future liquidity and backing. One basic idea would be letting people who hold the stablecoin have a say in how it’s run. This could work like voting – either by voting directly on specific issues, or by choosing representatives to make decisions like a republic style democracy.

After giving it some thought, it seems like we could actually use both approaches. Direct voting might work well for bigger decisions that affect everyone, while having representatives could help with day-to-day choices that need to be made quickly. This balance could help keep things running smoothly while still giving people a voice. In this approach another problem would also be the verification of user identity for the voters of the specific stablecoin.

A good aspect of this approach is that it would allow different perspectives to be heard. Anyone with a verified identity as a citizen could suggest improvements to the system. These ideas could then be discussed and voted on by the country as a whole.

There’s also the question of who should create and manage stablecoins. Should it be the Federal Reserve, or should private companies do it with government oversight? Both options have their trade-offs, and we’d need careful rules either way to make sure the system stays stable and secure.

One clear benefit of stablecoins would be reducing transaction costs. By using blockchain technology, we might be able to make sending money simpler and cheaper than it is now. This would be especially helpful for people who regularly need to send money to family in other countries. This would most likely have to also be paired with some level of centralization to prevent misuse on the network, especially for fraud detection, blacklisting, even potentially reversing transactions using governance tools to mitigate scams.

As we think about the future of stablecoins, it’s worth taking time to get the details right. How they’re governed, who issues them, and how they’re regulated will all make a difference in whether they actually help make financial services better and more accessible.

Finally, I think there is a further discuss to be had on how debt will be issued using stablecoins as a 1 to 1 asset reserve ratio might be too conservative to grow a functional economy. Perhaps in another article on another day, for now, wishing all readers an eventful week ahead.