Oddbean

Great episode! Thank you. Jeff, what I hear you say is that you’re skeptical about stablecoins. I suspect you’re referring to Tether on taproot-assets as that reinforces the system by increasing demand for US treasuries? What are your thoughts on DLC based stablecoins for Fedimint/Cashu? Aren’t emerging markets going to demand these until we’ve moved the majority of the 900T to a deflationary bitcoin standard where prices can fall in a less volatile way? I know you and I can use bitcoin on Lightning to pay for things now. But I struggle to see the majority of humanity adopt bitcoin as a MoE until USD/EUR inflation is in the double or tripple digits i.e. higher than bitcoin’s volatility.

Thanks Tankred and happy to connect anytime to go deeper. I agree that stable coins will be preferred (because most people don’t understand the game and will sacrifice short term for long term and the big money is in that game - so the incentives are too). That in itself - a stable coin is guaranteed to lose value to bitcoin at the same rate as currencies - will consolidate L2 and then provide an attack vector through a highly centralizing force with AI to essentially play the same game as humans have played throughout time. Prisoners dilemma through extraction and control. Could see the attack coming from a mile away because it was necessary to maintain the control structure. As store of value, Bitcoin would look like gold today, and then be suppressed through layer 2. In other words, for bitcoin to bring truth, hope and abundance to our world, it MUST also be used as a medium of exchange. That’s the game I’m playing and the stakes are very high!!

I would like to better understand this. I've heard a number of people say stablecoins can help prop up the dollar during the transition by continuing to purchase treasuries, but I am having a really hard time gaming that out mentally or what you wrote above for that matter. As with most things in bitcoin I find that I can't grasp the initial explanation fully, but as it seeps into the scene and I hear it explained several different ways it'll click.

1) If the free market is deflationary…..Ie - prices are supposed to fall…..then…what is a “stable” coin? 2) A “coin” that gains it “stability” by losing value at the exact same rate as a currency. 3) Which is by very definition, the system that we have today that stops the free market by manipulating money. Hope that helps.

Thanks, that part I understand totally. Stability is an illusion in a universe that's constantly in flux. What I can't quite see yet is how the transition will take place. Gradually vs suddenly or what the final warning signs will be. The gradual route seems more ideal/peaceful, but historically speaking technology is not adopted that way. Most days I am still shocked more people don't see it.

Privileged take. People need stability, literally the core function of sound money. Most people just can't afford wild price swings, that's it, nothing to do with a lack of understanding game theory. Good MoE is stable, bitcoin is not stable. Build stablecoins on bitcoin that can easily be swapped in/out, and hope one day enough liquidity and commodity use cases exist that bitcoin becomes stable and can be used raw as MoE.

Thanks for the in-depth reply. Been giving this some thought. I want the same thing. Bitcoin for payments are desirable and inevitable. I think we just differ on timelines. I agree L2 will be attacked, LSPs in particular (independent of stablecoins). But perhaps I’m more optimistic that a permission-less network can route around censorship as anyone can spin up a Lightning node or a Fedimint. BOLT12 in particular makes attacks more difficult due to improved receiver privacy. Bitcoin is also far more portable than gold, which network participants can use to mitigate capture. The incentives are such that even the ETFs will likely offer in-kind redemption and the option to take self-custody over the coming years. I guess what I’m saying with all that is I believe the network can withstand the risks of stable-coins usage on top of it *if* we invest in making it resilient enough to attacks. It has to be, even if we skip the stablecoin step and move straight to bitcoin as a medium of exchange. And also happy to connect to discuss more in depth :)