Wyoming is First State to Issue Stablecoin
Stablecoin is a type of Bitcoin-like digital currency that doesn’t physically exist. Unlike a dollar bill, which is backed by “the full faith and credit of the United States”, digital currencies are backed by, well, I am not sure what. Mostly hot air.
In the case of Wyoming, their stablecoin is called FRONTIER and is traded on 7 blockchains, although you can’t legally buy it. Yet. When you can buy it, you will have to pay the crypto exchange a fee on top of the value of the coin to buy it.
The idea of stablecoins is in the name. STABLE. It is required to be backed by more tangible money like US treasuries or cash and they cannot issue more serial numbers (which is really all a digital coin is – a number which is transferred from, in this case, the state of Wyoming to you, electronically.
In Wyoming’s case, there is a legal requirement for backing issued coinage at 102% – slightly more cash than coins.
Wyoming has created a Wyoming Stable Token Commission to help run it.
They say that this is better than private, for profit, coin issuers and, to an extent, I understand that concept. The interest on the cash they are using to back the coin will help fund education. Of course, they could take out the middle man and just invest that same money themselves and fund education but the theory is that you trade YOUR money for THEIR crypto and they get interest on YOUR cash.
The feds passed a law called the GENIUS act to regulate stablecoins, but Wyoming, being the wild west, says that they don’t need to comply with it. Turns out that is true until they issue more than $10 billion dollars worth of coins (there is an exemption in the law), so they are not exactly being renegade – just complying with the law.
Of course, in order to use such a “currency” you have to have both a willing buyer and a willing seller. You can’t just go into a store and say here, take my crypto, like you can with a dollar bill or even a credit card. It is going to be accepted in a lot fewer places as stores figure out how to accept it and how to convert it to money that they can do things with like pay the employees salaries. If there is a fee to accept it (like a credit card) and a fee to convert it, then they will have to raise prices to cover that cost. OR, make you pay that fee. If you pay cash it is $1.00, credit, $1.04, crypto, $1.15. You get the idea.
But there are some problems which a few early adopters will likely deal with.
First, the issue of you having to have a way to buy it (not legal yet; needs to pass some regulatory hurdles first).
Next you need to have a company willing to accept it. There will probably be some of these as soon as it is legal.
Then you probably want to have a way to liquidate it (turn it into cash). Right now fees to do that range from 5 to 20 percent according to Stable Coin Insider. Even the worst credit card company doesn’t charge you 10 percent to get some cash from your credit line. Of course, if you can find a private buyer and you can negotiate something else, you can do better.
Then there is the issue of insurance. There is no equivalent of the FDIC, the federal banking regulator that guarantees your money will be safe. I think that is the purpose of the Wyoming Stable Coin Commission, maybe, but right now they can’t even render a webpage in my browser correctly, so that makes me nervous. There is no evidence that the Wyoming State Treasury plans to be a guarantor, so it probably is not. The idea of requiring the coin to be backed against normal money helps but it not a sufficient guarantee.
But finally, and this is the biggest problem, stablecoin is implemented as software. Software has bugs and can be hacked. And likely will be hacked. What the consequences of any given hack might be are unknown. BUT, we hear of people losing hundreds of millions, even billions of dollars a year to hacks. Is the state of Wyoming going to make people whole if FRONTIER is hacked and people lose all their money? Or if their wallet software is compromised and they lose all their money? I don’t think so, but I would ask.
Two more quick thoughts:
- People use Bitcoin like they do hog bellies. They think they can buy low and sell high and make money. Some people make a lot of money this way. You can’t do that with dollar-pegged stable coins. In theory they never go up or down in value so why would anyone want it. And, if it costs you 5 to 20 percent to cash out, it doesn’t seem like a good investment. Maybe the Wyoming Stablecoin Commission will open an office in Wyoming where you can cash out for free – just like any other gambling establishment (casino) does. I doubt it, but maybe.
- The whole point of using a dollar bill is that it is simple (if you have one in your pocket you can spend it and it doesn’t require a PhD. to figure out how). And, it is not traceable by the government. The government can’t tell that you spent $7.50 at Starbucks for a burnt coffee bean cup of jo. With stable coin everything you do is tracked on a blockchain forever. FOR EVER. No anonymity. The government knows exactly where you spent every single penny. Is that what you want?
So why, exactly, would you want to use it? Other than being the first kid on the block to do so, I can’t think of a single reason.
My two cents. Feel free to comment here.
Credit: Stable Coin Insider
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