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On the subject of on-chain economy, one cannot circumvent the role of “money”, which is a store of value, medium of exchange and unit of account. For one would need to be able to pay domestically and globally, receive payment, borrow, lend and invest, just as how one uses fiat.
The link between the existing economy and the on-chain one is “money” itself, and one living on-chain to ulitize the global blockchain infrastructure decoupled from risks and restrictions from respective jurisdictions. There are roughly two categories of such on-chain “money”, stablecoin and deposit tokens, which serve similar system functions/utilities but subject to inherently different set of risks, regulatory implications and issuance method.
Stablecoin, depending on the type of stablecoin, is backed by a basket of cash and liquid assets and involves portfolio management for issuers earning and liquidity risk management. In addition to the banking risk from centralized issuers and smart contract/ protocol design risk from decentralized issuer, the core commonality which contributes to its stability is the collateral mix itself, both the types and the ratio. In addition, there is substantial regulatory risk from unclear guidance.
For deposit tokens, it is a form of tokenization of a bank’s deposit, falling under the current banking regulations such as liquidity requirements, the banks’ treasury/balance sheet. In addition, it is also subject to the risk of the bank itself and the larger domestic and global banking system in light of the recent banking events. Presumably it is just deposited money on-chain, enabling similar functionality of a stablecoin.
While still in their early days, there are clear trade offs between these two competing on-chain “money” options and the implications on the level of control the issuance entities have and perhaps incumbent interests.
Overall, every exciting evolvement of on-chain money ❤️