This is what bitcoin bros mean when they say "bitcoin, not crypto"

I'm not a hard line bitcoin maxi, but I do agree generally with that sentiment.

This technology was built to insulate us from this kind of stuff. But what do the crypto bros build? Shit that's exposed to risk in the traditional banking sector, dressed up as cryptocurrency. A bank collapses and several of these projects take a hit. They're not cryptocurrency in the way we talk about it, theyre not decentralized, they're not in any way shape or form a part of a separate, permissionless financial system.

Now let's talk about stablecoins. You hear from lots of people something along these lines: cryptocurrency is unstable and volatile, for adoption we need something with a stable value. The usual bitcoiner (and some others) is usually that you're not insulated from debasement risk by the central bank that controls the fiat these stable coins are pegged to or backed by. But that's not really the only or even the worst risk of these types of things.

There's asymmetric, downside only risk to holding these things. Imagine you've got a stablecoin worth a dollar each, and the peg breaks, it becomes worth $1.10. What are you likely to do? You're likely to sell it to make some free money, wait for the price to go back to a dollar and buy back for a free 10% profit. This puts downward price pressure on the stablecoin and helps keep the peg. Sounds good.

Now, the reverse. You have a stablecoin worth a dollar and the peg breaks and it's worth $0.90. What are you likely to do? Stablecoins breaking peg are big hits to their perceived value, you're likely to sell what you have at a 10% loss to avoid losing more money. some enterprising people might buy thinking the peg will be restored, but for the most part there's likely to be downward price pressure due to such a depeg.

In both circumstances a sell off is likely. This means there is always more downside risk than upside to holding stablecoins. The risk profile is asymmetrical.

Is this the stability that is going to bring adoption? Continued exposure to traditional finance systems, a cap on any upside on your savings, a guarantee that one day the peg will break downwards, and of course, exposure to debasement?

Stablecoins, particularly those backed by fiat, are a worse place to store your money, even with high volatility. They're not the magic bullet. They're generally a bad idea.

The only "stablecoins" that make any sense would be coins backed by commodities like gold, in a vault, audited and proven periodically. But those aren't really stablecoins, those are tokenized commodities. They can reduce your exposure to this market and still have symmetrical risk profiles.

Another type would be algorithmic ones not collateralized with anything inside a bank. DAI fucked up when they allowed USDC to be used as collateral, they ceased being purely algorithmic backed by collateral.and became partly backed by bank reserves, thus exposing them to the banking system. Even without that they're still exposed to debasement risk but at least that's a known risk they're choosing. People didn't buy DAI to basically have their dollars in a bank uninsured. Ideally a token like this would be pegged to a commodity to avoid that risk, and not a fiat currency.