Business, Science & Tech, Community & Government
Paul & CZ In-Conversation: Are Stablecoins Safe?
Lesson time 08:53 min
Continuing their cryptocurrency debate, Professor Paul Krugman and CZ cover the contentious topic of Stablecoins.
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[MUSIC PLAYING] - Okay. We want to turn the discussion a little bit to coins, stablecoins, one way or another, which have been proliferating, as have, more recently, sort of scandals involving coins or failures of coins. Question, I guess, first of all, is why do we-- why? I mean, we were supposed to be creating these digital assets that didn't require-- you know, that were decentralized, that didn't require institutions. It was all to free ourselves from financial intermediaries. And then we create stablecoins, which are essentially the-- you know, you're entrusting your digital assets to a financial intermediary, even if it doesn't look-- or even if it isn't called a bank. So why are we doing this? Why do we feel the need for this? - Yeah. This is actually a very good topic. There are many different types of coins in this industry. On the stablecoins, see, stablecoins serve as a very unique purpose in our industry. Historically, banks were very reluctant-- generally, even today, banks are somewhat reluctant to work with crypto businesses. And this-- they were only in a few countries where you have crypto exchanges that have fiat access, you know, US dollars, RMB, Russian ruble, euro, et cetera. So in 2017, there's crypto-to-crypto exchanges. Many of them become very popular. And then this exchanges don't have the fiat pegging to it. So when Bitcoin drops, people have to withdraw Bitcoin from this exchange onto a Bitcoin to fiat exchange and convert them to fiat. And fiat doesn't move-- banks doesn't move very easily across countries, et cetera. So the prices in different countries are very different. So Korea always has a kimchi premium for Bitcoin prices. And then there was the stablecoin. There was USDT. And people said, wait a second. If you added USDT pair to Bitcoin, people don't have to withdraw those money out of the exchange. So it's the fact that the banks didn't support the cryptocurrency exchanges caused the US stablecoins to be much more popular. And then when stablecoins become popular, it is actually much easier to transfer stablecoins on the blockchain than transferring money using banks. Again, banks could compete. Banks, in theory, doesn't-- should be able to fix this problem, but they haven't. So stablecoins got popular. And then now, we got algorithmic stablecoins. It's a new thing. It has risks. One project did not manage those risks well. Caused a big problem in the industry. So we're still seeing the effects of that. So now we understand better the risks for this algo stablecoins. So if we look fundamentally at stablecoins, it serves the use case that crypto doesn't do and banks doesn't do. So it's kind of an in-between. And you actually have a high demand in the blockchain. - The coins, the stablecoins, I mean, I see the point that they're-- you want something-- if banks were unwilling to be-- facilitate transactions in the crypto space, then you create something that is-- that w...
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