Will Crypto Become the World’s New Reserve Currency?

1. Will Crypto Become the World’s New Reserve Currency?
Terra Stablecoins are on the rise
Since the Great Depression and the World Wars of the 20th Century the U.S. dollar has been the
dominant currency worldwide. But there is no reason this will continue forever. Looking at the
history of fiat currencies, every 100 years or so the world’s reserve currency has changed. The
country that dominates global commerce during any given period is usually the one who’s
currency dominates. This time around, the winner may not be a country. Instead, the table is
being set for a currency that lives on a distributed blockchain called Terra to step in as the
dollar’s hegemony weakens. And because this technology is permissionless, decentralized, self-
governing, censorship resistant, and self-perpetuating it is unlikely that any government or
central authority can stop it.

2. Souce: SeekingAlpha
Arguing that the U.S.’s influence over global commerce is waning is nothing new. The US long
ago lost the title of being the largest creditor nation in the world. Today it is not just the largest
debtor nation in the world but the largest debtor nation in the history of the world. In contrast, the
country many believe will succeed the U.S. in dominating global commerce, the People’s
Republic of China, is not only approaching the U.S. in commercial scale and influence but it has
become the largest creditor nation of all time. Will the 21st century belong to China and the
Yuan?
Comparing United States and China by Economy
The United States and China are the two largest economies globally in both Nominal and PPP
methods. US is at the top in…statisticstimes.com
The prize for becoming the reserve currency of this future is substantial. Having the world’s
reserve currency affords the U.S. many privileges. It means there is underlying demand for U.S.
bonds from foreign central banks and other large investors looking for a safe market in which to
invest. That allows the U.S. to borrow at lower rates than would otherwise be possible and it
means people holding U.S. dollars have greater buying and borrowing power than anyone in the
rest of the world.
Certainly, China’s extraordinary growth in the last few decades suggest it will be the next
winner. But could cryptocurrencies steal China’s momentum? From where we stand today, they
have a long way to go. The current crypto stablecoin market capitalization is a mere $141B . But
the prize is enormous: if crypto becomes the dominant infrastructure for global payments, saving
and investing, a significant portion of the world’s $86T of fiat money could move over to the
blockchain.

3. Source: CoinGecko
Crypto stablecoins have become the “killer app” of blockchains, seemingly overnight. As the
chart below on the Ethereum blockchain shows, it has only been in the last 18 months that this
dominance has emerged.
Ethereum transaction volume (Source: Messari.io)

4. The question then is whether there will be one coin to rule them all? Given Bitcoin’s fame and
market size or Ethereum’s growing dominance in financial activity, one would think one of these
two would be the natural place for the winner to arise. In fact, though, there is only one
blockchain that has an audacious enough vision and the proof points of early momentum to lay
claim to the lead in this race: Terra Money.
Terra Money
Terra is a price-stable cryptocurrency that will power the next-generation payment network and
grow the real GDP of the…medium.com
Other blockchains have focused their efforts on making the technology safer, faster, easier or
more versatile for crypto enthusiasts. Think of the blockchain like an operating system like Unix
or DOS. The various upgrades to this “operating system” and the many apps that have been
developed on top of the existing blockhain infastructure or ‘operating systems’ like Ethereum
have largely been for insiders and crypto natives. Terra’s approach is more like Apple’s and
Terra Form Lab’s co-founder Do Kwon’s vision is as grand as Steve Jobs’ was back in the
1990s. Do and the Terra team have designed the technology from the ground up for regular
people to be able to use it, often without them even knowing they’re doing so. Because of this,
Terra’s is fast becoming the blockchain that millions of everyday people and businesses use in
the real world to spend, save and invest their money.
They do this first by creating a suite of stablecoins, each of which is pegged to a major currency
like the U.S. dollar or the euro. The stability of this peg is ensured through a set of algorithms
that run automatically on a distributed blockchain by scores of independent computers all over
the world. And then they instill faith that people will want to hold and use these tokens by
building a suite of applications where people can spend, save and invest in a way that is
dramatically better than anywhere else.
Spending Money
Millions of people in Korea already use an app called Chai, which runs on the Terra blockchain,
to pay for everyday goods. It also offers merchants a lower transaction fee than other cards
(typically around .5% as compared to 2–3% for other services like credit cards). This difference
in fee is very impactful in Asia and industries like ecommerce where margins can be as low as
4%. Another key advantage is that Chai offers near instant settlement (typically six seconds), as
opposed to traditional providers who hold the cash for a week or more, which is crucial for these
merchants who often have no working capital.

5. Saving Money
People can also save their money in Terra using an app called Anchor and earn liquid and dollar-
pegged stablecoin yields on the order of 20% for a risk materially lower than assets bearing
similar return profiles.

6. Anchor Protocol’s dashboard

7. Unlike the highly variable yields in “defi” apps on other blockchains (which rely on the
borrowing demand from high-risk and fickle traders and hedge funds), the Anchor lending rate is
powered by a diversified stream of staking rewards from major proof-of-stake blockchains.
The borrower collateralizes their loan by depositing their income-generating staked tokens and
hypothecating the income stream from these staked tokens to Anchor. Anchor, in turn, pays these
highly secure and predictable yields to the Anchor depositors. Currently, and for the medium
term, the rate that depositors of Terra U.S. dollar ($UST) stablecoins receive is just under 20%
APY. This 40x what a similarly liquid account at a bank yields today.
Best Savings Accounts - October 2021
What Is a Savings Account? Offered by banks and credit unions, savings accounts provide a safe
place to keep money and…money.usnews.com
Investing Money
And finally, people can invest their money through the Mirror protocol, which also operates on
the Terra blockchain. Mirror is a way to invest in tokens that reflect the real-world price
movements of assets like a stock or commodity. As long as there is a reliable price signal that a
smart contract can respond to, it can be mirrored in crypto.
Mirror
Mirror Protocol allows the creation of fungible assets, "synthetics", that track the price of real
world assets. Mirror…mirror.finance
The real promise of mimicking real-world assets like Tesla or oil or Apple stock on-chain isn’t
that people can now buy stocks or commodities with Bitcoin or $UST. This does have some
value since using crypto money to trade stocks or commodities or the like allows anyone in the
world (even if they don’t have a bank account or a computer) to deploy their knowledge or
expertise and use their smartphone to start putting their savings into some of the best assets in the
world, no matter the country the person or the asset is in. In addition, it is useful to have the
ability to trade and settle instantly, permissionlessly and 24/7/365. And there is value in the fact
that mirrored assets on the blockchain can be fractionalized so people can buy even a penny’s

8. worth of a real-world asset and pay virtually no fee to do so (and wait only a few seconds for
their trade to settle).
All of those features are positive, but the highest value of these synthetic assets is that they are
now minted as decentralized “primitives” that can be composed like lego blocks into different
uses within a censorship resistant digital landscape. Assets can be collateralized and
fractionalized; leverage can be secured instantly and permissionlessly; decentralized and
customized liquidity pools or decentralized exchanges can be created; imaginative indexes and
ETFs can be established and managed by anyone anytime through smart contracts; and
derivatives can be created and mixed by anyone.
Conclusion
Because Terra is fast becoming the best way in the world to spend, save and invest your money,
Terra’s universe of stablecoins will likely be the biggest threat to the continued dominance of the
U.S. dollar. We may well be at one of those moments that historians will write about in the
decades and centuries to come. Except this time, rather than a single nation dominating global
commerce, it could be a self-governing, autonomous and unstoppable piece of software quietly
developed by a group of extraordinary entrepreneurs like (Do Kwon) based in Korea and across
the globe.
Z.R.