Cardano founder Charles Hoskinson spoke at length about what he perceived as the existential risk the crypto industry is facing. In a video titled “Legacy is Eating Crypto,” Hoskinson stated that algorithmic stablecoins are the essential thing the industry needs to look into while declaring asset-backed stablecoins as problematic.
Referring to Coinmetrics data, the chart showed that stablecoin only represents 10% of the digital asset market value, out of which Tether’s USDT and Circle-backed USDC are the overwhelming majorities, but they dominate about 70% of all on-chain transaction volume. “From a crypto perspective, Bitcoin takes a backseat to USDC and USDT, as these two assets are currently controlling the on-chain traffic and value transfer. This is bad because they are asset-backed,” he stated.
The first area of concern is that these coins are backed by central issuers who are subjected to jurisdiction, like banks adhering to regulations. This raises the issue of centralization, as the inherent goal of crypto is that it is a global asset and is not defined by jurisdictions. Secondly, asset-backed stablecoins “can’t go fractional,” meaning no forks. “The issuers cannot say they just want to be on both sides and let it ride because doubling supply means that they are only backed by 50 cents to a dollar. They have to pick a winner, either A or B, but not both, by design.”
Cardano Founder: “70% of Crypto Deals Are Asset-backed Stablecoins”
By this, Hoskinson meant that in such a scenario, issuers might pick sides and override the community’s consensus. The fact that 70% of all on-chain transactions are taking place at the stablecoin level, is a cause for concern, according to the Cardano founder, because one cannot afford to be on a chain that suddenly loses USDC or USDT.
So what if one splits? One says we are going to put KYC into the whole system, and the stablecoin supports it, but the other side will lose all liquidity and its defi backbone. That property forced us to pick a winner. So we have now implicitly given the issuer the power of one’s underlying assets, and that is incumbent in the design.
The only coins that are not subjected to the issues are the algorithmic stablecoins, making them the only asset classes that are value-compatible with crypto currencies, the Cardano founder emphasized.