While stablecoins rely on sovereign credibility like traditional fiat, they can separate trust in sovereignty from trust in corporate power.
Written by: Jacob Wittman, Legal Advisor at Plasma
Compiled by: AiddiaoJP, Foresight News
What is Currency?
In July 1944, as World War II was nearing its end, representatives from over 40 countries gathered in a small town in New Hampshire to answer a seemingly simple question: What is currency and who controls it? The Bretton Woods Conference was not the first time global leaders explored this issue, nor would it be the last. The debates surrounding gold, the dollar, and exchange rates formed the architecture of the modern global financial system.
For thousands of years, every major currency reform has revolved around a fundamental question: What gives currency its value? Debates about the value of currency often involve its sovereignty and scarcity.
Every currency reform is less about the physical form of money and more about trust, power, and the rules of the game. Stablecoins represent the latest direction in this round of reform, as trust and power are trending towards decentralization. We believe that stablecoins are the most influential form of currency today.
The Era of Commodity Money
The earliest known forms of currency were commodities, such as gold, silver, shells, and salt. These items have intrinsic value or widely recognized value, derived from their physical scarcity. For example, gold is in limited supply and must be mined, which is both difficult and expensive.
Scarcity brings credibility. If you hold a gold coin, you can trust it as a good 'store of value' because no government or banker can print more gold out of thin air.
On the island of Yap in Micronesia, currency took the form of massive limestone discs, some weighing several tons, quarried from Palau, with their value depending on size, transportation difficulty, and source. Since ownership is tracked through community consensus rather than physical movement, these stones demonstrate that the power of currency comes from shared belief rather than intrinsic value.
However, this form also brought limitations. Commodity money is heavy, difficult to transport, and inefficient in a rapidly growing global economy. These physical limitations hindered payment efficiency and stunted economic growth. Long-distance trade required a system that could transcend the weight of metals and capital constraints.
The Transition of Fiat Currency
The combination of globalization and industrialization ultimately led commodity money to a collapse. Government intervention introduced fiat currency. Paper notes were initially redeemable for gold or silver and gradually became widely accepted as currency itself. The Bretton Woods system institutionalized this ecosystem by pegging the dollar to gold and other currencies to the dollar.
This monetary system has largely operated for 25 years. However, by the late 1960s, the U.S. gold reserves could no longer support the global dominance of the dollar, and in 1971, President Nixon suspended the convertibility of the dollar to gold, ushering in the era of unbacked fiat currency.
In the next phase of currency, value derives from sovereign credibility rather than material scarcity. The dollar is valuable because the U.S. government says so, and markets and foreign governments believe it. Trust has shifted from being physically supported to being politically and policy supported.
Such profound changes provided nations with powerful tools. Monetary policy became a core lever for economic management and geopolitical strategy. However, fiat currency also introduced vulnerabilities such as inflation, currency wars, and capital controls. In some cases, flexibility and stability are at odds. Today, the core issue surrounding most modern currencies is not who can create money, but whether those in power are trustworthy enough to sustain their value and utility in the long term.
The Digital Representation of Currency
The rise of computers and the consumer internet raises an important question at the intersection of electrical engineering and finance: Can currency be represented in digital form in the digital world?
Projects like Mondex, Digicash, and eGold were early attempts at this issue in the 1990s and early 2000s. They promised new electronic payment methods and means of value storage. Ultimately, these projects failed due to regulatory pressure, technical flaws, and a lack of trust and product-market fit.
At the same time, electronic banking, credit cards, payment networks, and settlement systems became widespread. Importantly, these are not new assets. They are new representations of fiat currency, more scalable and suited to the modern world. However, they still follow the same institutional trust and policy framework and, crucially, rely on closed technological systems and operational networks managed by rent-seeking intermediaries.
The Emergence of Stablecoins
Stablecoins leverage this dynamic but shift power from corporations by utilizing open, permissionless infrastructure. Fiat-backed stablecoins are inherently hybrid. They inherit the credibility and efficiency characteristics of fiat currency while utilizing programmability and global accessibility.
Peg stablecoins to redeemable reserve assets, maintaining value predictability by leveraging the credibility of sovereign nations like the United States. Issue them on public blockchains to enable instant settlement, 24/7 operation, and frictionless cross-border transactions.
We believe that the emerging regulatory framework for stablecoins (which is an intrinsic component of their 'monetary nature' today) should align with our core principles regarding how stablecoins should serve users.
Permissionless: Individuals should control their digital assets without heavy account restrictions arbitrarily imposed by intermediaries.
Without Borders: Geography should not determine whether someone can make or receive payments, nor should it dictate the time required to send or receive payments.
Privacy: Consumers should be able to freely participate in commercial activities without worrying about unwarranted surveillance from the government, the private sector, or other consumers.
Trusted Neutrality: Global flows of capital should be free from discrimination, allowing people from all backgrounds to save and spend dollars as they wish.
Conclusion
Stablecoins are the next step in the evolution of currency. They depend on sovereign credibility like traditional fiat but, unlike electronic forms of fiat that preceded stablecoins, they separate trust in sovereignty from trust in corporate power. The best currency assets exist based on the best currency technologies and networks.
