Original Armonio AC Capital Research 2024-05-22 13:18 Guangdong
Share:Armonio, AC capitalTwitter: @armonio_liang
This article is dedicated to the 14th Pizza Festival where BTC cannot buy pizza, and the cryptocurrency circle where crypto culture is not the mainstream culture.
Fourteen years have passed, and in the blink of an eye, cryptopunks have welcomed the fourteenth Global Pizza Festival.
This festival commemorates the legend of crypto pioneer Laszlo Hanyecz who bought two pizzas with 10,000 BTC. This was not only the first transaction in the history of cryptocurrency, but also represented that BTC had fulfilled all the functions of currency. This means that digital cryptocurrency has officially entered the historical stage of global currency. A brand new market is slowly opening up to adventurers around the world.
Fourteen years have passed. Even though the price of BTC has increased by hundreds of millions of times, pizza still tastes the same. If you want to exchange BTC for pizza, you still have to use legal currency (except in El Salvador and the Central African Republic). BTC has made a lot of progress in value consensus, but in terms of application consensus, we have been hesitant since Satoshi left. Satoshi's "peer-to-peer electronic cash system" is still only technically feasible, and there is no product landing.
It is precisely because of the slow implementation of BTC that the current situation has been created: BTC is surrounded by stablecoins and digital cryptocurrencies such as XRP. In traditional markets such as the global convenient and cheap remittance system and bearer currencies in the black market, BTC's share has been repeatedly eroded. Global currency is a great interest: in order to obtain it, the US government, in conjunction with Wall Street, wants to use the digital encrypted payment market created by Bitcoin to further expand the hegemony of the US dollar.
At the beginning of the article, let me ask a question:
When did the habit of crypto organizations paying salaries with BTC come to an abrupt end? When did various airdrops of BTC giveaways turn into giving away USD stablecoins and altcoins?
As the belief in encryption loosens, the market liquidity logic of the cryptocurrency circle has undergone a qualitative change. After 2021, how many people will still insist on the stubbornness of BTC and ETH? When the trading intermediary status of BTC and ETH is shaken, the pricing of BTC and ETH is controlled by Wall Street, and the valuation of the entire cryptocurrency falls deeper into the hands of the United States.
The US dollar stablecoin has encroached upon the original function of BTC and ETH as a transaction intermediary, weakening the value capture of BTC and ETH.
In decentralized exchanges, BTC and ETH can still hold the main market:
After entering the centralized exchanges, a large number of trading pairs are calculated in USD stablecoins, and the number of USD stablecoin trading pairs far exceeds that of BTC and ETH. The pricing power of cryptocurrencies has already begun to be eroded before Wall Street puts BTC and ETH into ETFs.
In this way, the market that originally supported the prices of BTC and ETH has become a vassal of the US dollar hegemony. The identity of digital cryptocurrency holders and traders has changed from liberal crypto-punks to short-sighted sources of US dollar liquidity and supporters of US dollar hegemony.
The current situation is inevitably a bit bleak.
01
Desire: America Devours Global Finance
This is the call of the great era of encryption
The blockchain system is a systematic technological revolution of Genesis. Decentralized payment not only replicates the function of Alipay, but also reduces the time of cross-border payment from days to seconds. The birth of blockchain has created a low-cost multi-party trust trading environment. This trust reduces transaction costs when used in transactions, and a new organizational structure will be born when used in organizations. Although the vested interests of the old world are resisting in vain, the world's elites have never given up on integrating blockchain technology into the traditional financial system. BIS and WB have continuously given policy guidance on encrypted assets and even DCEP in documents.
Under the grand trend, all sovereign countries in the world, as long as they can issue legal tender, will think about how their own currencies can gain a foothold in the new monetary environment. The blockchain's accounting method solves the trust problem between financial entities and is the latest form of currency that has the advantage of productivity. The issuance of digital legal tender in combination with blockchain technology has become the only choice for major countries. China and Europe are on the same path, introducing blockchain technology and rebuilding a payment and settlement system. In contrast, China is relatively ahead: China issues its own digital encrypted RMB in a self-built alliance chain. After two years of research, the European Central Bank found that their digital asset system can achieve concurrent transactions of TPS 40,000, laying a technical foundation for the further development of the digital euro. In comparison, the United States has adopted a more open attitude. Anyway, the currency in the history of the United States has also been issued by private banks, and the US government does not absolutely exclude digital dollars issued by private companies. Therefore, so far, the scale of centralized and decentralized stablecoins has exceeded 160 billion, and has assumed the liquidity responsibility of the world's major digital cryptocurrencies. Although the digital dollar is not issued by the Federal Reserve, there is no doubt that it has far exceeded other competitors in terms of market acceptance.
Issuing crypto-asset fiat currencies is the most effective and direct way to counter native crypto-asset tokens. This is something that neither the BIS nor the World Bank shy away from.
Not only will the currency be encrypted, but also the assets will be encrypted. The encryption of huge assets will form an integrated global financial market, commodity market, and service market. Whoever can keep up with the fast train of encryption development and occupy the largest market share will be able to obtain the greatest welfare.
This is the blessing of the world's currency issuer
During the pandemic, the US base currency was over-issued. The Fed's balance sheet has more than doubled since the pandemic. In order to deal with these over-issued credit currencies, shrinking the balance sheet is an inevitable choice. In addition, if a new market can be provided for the over-issued base credit currency, it can also support the over-issued credit from the demand level and support the valuation of the US dollar.
Crypto-dollars erode the crypto-liquidity market. On the other hand, the crypto-world is not just a free land without an owner, where any currency can compete freely. The US dollar stablecoins deployed by Tether and Circle not only dominate the third and sixth place in the cryptocurrency market capitalization list, but are also important general equivalents in the crypto-world, with the highest level of liquidity. Due to the high volatility of native crypto assets such as BTC and ETH, using US dollar stablecoins as risk-avoidance assets has become a consensus among the natives of the crypto-world. This undoubtedly lays a solid foundation for the US financial conquest of the crypto-world.
Crypto-dollars not only erode the liquidity market of BTC and ETH in the crypto world. The crypto world spans traditional financial markets around the world. The decentralized nature makes it difficult for traditional power to regulate. Therefore, crypto-finance not only borders the markets of countries around the world, but also has deep integration and penetration with these sovereign markets. The World Bank's report shows that cryptocurrencies have put forward higher requirements for supervision. Because of regulatory and demand factors, cryptocurrencies are more popular in emerging countries and poor areas. In areas where currency credit has collapsed, such as Turkey and Zimbabwe, digital currencies including US dollar stablecoins have entered the circulation field. OTC trading booths for cryptocurrencies can be seen everywhere on the streets of Turkey.
“Erosion” represents huge benefits. Behind every centralized stablecoin is nearly 90% of U.S. Treasury bonds.
More than 90% of USDC is held by the money market fund managed by Blackstone, and this fund only holds the repurchase terms of U.S. Treasury bonds and the U.S. Treasury bonds themselves.
Every dollar of centralized stablecoin is backed by 0.9 dollars of U.S. Treasury bonds. The dollar stablecoin provides a better value scale and transaction medium for the digital crypto world. The liquidity demand of the digital crypto world also provides the value capture or value support for the U.S. Treasury bonds behind it, which is what any token economist dreams of.
This is Wall Street's meal ticket
We should know that the predecessor of the Federal Reserve was the commercial bank cartel. In the early days of the Federal Reserve, the right to issue currency was between core commercial banks and the government. Most financial institutions died of insufficient liquidity. Having their own water pipe can guarantee a stable income for their own private plots. This is why Wall Street in the United States has always harvested the global market. However, how can it be more comfortable to put the credit power in the hands of the government than to hold it yourself? Today's mainstream centralized stablecoins are a trick of turning commercial bills and money market funds into US dollars. Take USDC as an example, only 10% is cash reserves, and the rest are assets in the money market managed by Blackstone Fund.
（https://www.blackrock.com/cash/en-us/products/329365/）
This ability to directly convert assets into cash can be described as turning stone into gold. In the past, only the Federal Reserve had this ability. Now, as long as you can become the issuer of a stablecoin, you can share the seigniorage that provides credit to emerging markets.
In addition, if you have the faucet in your hands, you can really buy at the bottom with unlimited ammunition.
The tokenization of the financial industry is a vast picture that is slowly unfolding; it is a revolution in the financial industry.
At present, RWA puts real assets on the blockchain, which can not only sell US dollar assets to the world at a low cost and expand the buyer's market, but also promote the financial services dominated by the United States to the world. So far, global investors need intermediary brokers to enter the US capital market. After KYC is completed and the account is opened, the currency needs to be converted into US dollars and remitted to the designated account of the broker. Personal cash accounts and investment accounts are fragmented and cannot be connected. The operating qualifications of brokers need to be obtained in each country. This cumbersome cross-border financial market structure will be replaced by a simple wallet + front-end and token + blockchain. As long as the money is on the chain, combined with decentralized KYC, you can participate in all financial transactions that meet the conditions. RWA can even use US financial services to finance projects in developing countries.
The financial industrialization and standardization of tokens will inevitably introduce more service industries. When Silicon Valley in the United States leads industrial innovation, we use the US dollar stablecoin to participate in the token financial instruments regulated by the SEC and provided with liquidity by Wall Street. Where should I find a lawyer? Where should I find a tax and accounting firm? Whose policy guidance should I listen to? Whose face should I look at? It goes without saying.
The expansion of the industry, accompanied by financial leverage, the issuance of securities and tokens, will bring direct credit asset wealth to Wall Street in the United States. The industrial influence seized by the United States through industrial erosion will enable American capital to gain the ability to continue to reap the benefits in the future.
02
BTC under siege
Due to anti-money laundering and anti-terrorism requirements, even payments face compliance pressure. Therefore, the current situation is: legal currency sticks to the payment track. Stablecoins compete for BTC transaction medium.
Payment track
If the advantage of crypto assets is on-chain constraints, then the advantage of the US dollar is off-chain payments.
The crypto asset USD stablecoin has both on-chain constraints and off-chain payments.
Through encrypted accounts and signatures, centralized US dollar stablecoins have encrypted signatures of endorsers. In terms of on-site payment, US financial institutions have already made preparations.
The most common digital asset stored-value cards nowadays mostly use Master or Visa to complete the last mile when they are finally put into use. Master and Visa are like the gatekeepers of a residential area. They let the takeaway in and they will get the ticket to enter the global real-world payment market.
Even if stablecoins are not used to seize the status of on-chain transaction medium, all off-chain payments cannot avoid the coercion of licensed payment institutions. Master and Visa have the most extensive payment interfaces in the world, forcing issuers of digital encrypted stored-value cards to follow their rules: use US dollars for settlement. As long as the card issuer can achieve standard KYC and AML, and convert all kinds of crypto assets in the world into US dollars in compliance, financial institutions in the United States can complete global payments for holders. Binance's payment and Dupay's payment are both completed in this form. In this process, digital encrypted assets exist only as financial assets or means of stored value, and are insignificant in the payment process.
For most people outside the cryptocurrency circle, paying with stablecoins would be more intuitive and convenient.
RWA Track
With the global decentralized network, financial services in various countries will face zero-distance competition. BTC's peer-to-peer cash system is also a kind of financial service. Under these assets that are more related to legal currencies, it is more convenient to use stablecoins as the cornerstone and underlying currency.
One of the biggest features of digital crypto assets is their penetration into financial regulation. Because it is both decentralized and anonymous. This makes regulators in various countries helpless. Unlike financial institutions that must comply with local regulations and obtain local business licenses when they enter a country, Web3 is the no-man's land that Satoshi Nakamoto promised to crypto enthusiasts. Issuers of digital crypto assets can conduct business on the chain without setting up offices or other branches on the ground. The US dollar stablecoin has higher predictability in the payment field and is more easily accepted by the public. However, it is not enough to have a payment function. It also needs to have a financial management function like Alipay. Wall Street can provide customers with a ready-made set of compliant financial products to meet the various needs of various people. Let the public take over for Wall Street again after taking over for the US government once.
Compared with decentralized exchanges, centralized exchanges have much better liquidity. Binance and OKX are high-quality exchanges. Aren’t the New York Stock Exchange, Nasdaq, and London Stock Exchange also high-quality exchanges? Why can’t the pink sheet market and small stocks above become shell resources for memes? How many small pink sheets and penny stocks can catch this overwhelming wealth by just changing their names and stories and mapping them to the chain. SBF has done it before, but unfortunately it didn’t catch up with the good times of memes now.
Compared to BTC, most financial assets on Wall Street are denominated in US dollars, such as bills, commodities, stocks, and fixed assets. Establishing trading pairs with US dollar stablecoins and providing leverage for US dollar stablecoins are not only more in line with user habits, but also reduce risks. We can even see that because USDC is more compliant than USDT, many RWA projects prefer USDC.
While RWA is exporting American financial services to the world, it has also created a more suitable application scenario for the US dollar stablecoin. Stablecoin holders can consume and enjoy consumer finance at the same time.
Blockchain track
Blockchain technology is a decentralized ledger system that cannot be replaced by legal tender. Secondly, most digital cryptocurrencies have strict token issuance disciplines, which cannot be enforced by any central bank. Therefore, in the future, blockchain technology is irreplaceable. There is chain-level sovereignty on the blockchain: BTC's accounting currency is BTC, and ETH's accounting currency is ETH.
In order to prevent BTC from becoming too big to be eliminated, cultivating competitors is a means. In addition to BTC, ETH, Solana, Cosmos, Polkadot and various layer2s have emerged: they can do what BTC can do, and these up-and-coming players can also do what BTC cannot do. This diverts BTC's attention and reduces BTC's monopoly.
Breaking the monopoly of BTC and increasing competition in the blockchain field are essentially good things. However, in the context of competition between legal tender and native digital cryptocurrencies, segmenting the digital crypto market and dispersing the consensus on the value of BTC will be more conducive to Wall Street controlling the pricing of BTC and other native crypto assets, and will help to form an industrial structure that is beneficial to Wall Street. It will also help to form a digital crypto asset pricing system based on the US dollar and US dollar stablecoins, and further enhance the status and weight of US dollar stablecoins as a trading medium in the crypto world.
Thought Stamp
Killing people and destroying their hearts, this is what the United States wants to do and is doing now.
The primary market and the secondary market are all priced in US dollars and US dollar equivalents. How much US dollars did this project raise, and how much US dollars is that project valued at. Once upon a time, we had forgotten that ETH financing was paid in BTC, and many early projects such as EOS, DAO, Near, 1inch, DANT, and BNB used BTC and ETH as financing methods. We forgot how old we were when we used BTC and ETH to price project valuations. The clamping of thoughts is the real reason why the digital crypto world loses liquidity.
Throughout human history, the core of a country's cohesion is cultural identity. What is being done is to destroy the culture and ideals of cryptography. Among the newcomers who entered the circle after 2020, how many have read the Bitcoin white paper, how many have read Satoshi Nakamoto's letters, how many know the Austrian school, and have recognized or reflected on its value and feasibility. Some people say that NFT and Meme are massive adoption. I raise my middle finger. This is massive adoption in the currency circle, not the inheritance of Satoshi Nakamoto. Through several rounds of bull markets, the crypto veterans were arrested and left. Crypto thinking is no longer mainstream in the crypto world. As the United States wishes, a cultural fault has been formed.
When the faith of an organization collapses, all order will fail, and every individual will desperately try to gain benefits for himself. Isn’t this the most realistic portrayal of the current market and industry?
03
postscript
Another form of progress: de-intermediation and de-monopoly of American credit
As the world currency, the US dollar, through the pervasive digital encryption network, has helped Wall Street sweep the world. For all countries, it is bad news. However, for the world's human beings, it is indeed a progress. The euro zone was gradually formed based on the Mundell theory after many years of coordinated fiscal and monetary policies by European countries under the consensus reached. This process took decades and left serious sequelae.
The US dollar has eroded global finance through the digital cryptocurrency network, but it has done so in a "silent way". The monetary discipline of many countries in the world is not as good as that of the United States, and the monetary credit is of course far lower than that of the US dollar. However, due to payment requirements and the financial environment, many people have to choose to hold local currencies. Countries will endorse their own currencies by holding US dollars and US bonds.
In fact, the credit transmission here means that the credit of the US government is transmitted to a certain government through US debt and US assets, and the government then uses this credit endorsement to increase the issuance of its own currency. In this chain, the government of a certain country is an intermediary. We agree that it is valuable to eliminate intermediaries and break the interest structure of intermediaries.
In addition, this move has made the global capital market more integrated and broken the monopoly of local forces on local financial resources.
Although the globalization of the crypto dollar has not achieved decentralization, it has achieved the elimination of credit intermediaries and accelerated the integration of global finance. This is objectively also an improvement in the history of finance.
The best is yet to come: The rebirth of encryption
In the past, I thought I was a native of the crypto world. In fact, I am not. I just like the liberalism advocated by BTC because of my past experiences, and I am willing to take the ideals of crypto as my ideals and goals. There are no natives in our generation, and we don’t have enough time to accept the baptism and inspiration of crypto and crypto culture. Generation Z is just the first generation of the Internet.
Twenty or thirty years later, people who are truly born under the influence of crypto technology and crypto culture will truly grow up. They are reading BTC white papers, studying encryption algorithms, playing with NFTs, and enjoying the convenience of DePIN. There will no longer be China, the United States, the East, or the West in their minds. By then, decentralized technology will be more developed, the cost of decentralization will decrease exponentially according to Moore's Law, and the disadvantages of centralization will be clearly revealed in the culture and understanding of decentralization.
By then, a single spark can start a prairie fire. Perhaps a free and harmonious world will be reborn from the hegemony of the US dollar.
Note: The content and opinions in this article were inspired by Rebecca, founder of Deschool, and Brian Seong, developer relations at Polygon. We would like to express our gratitude to them.
references:
Bitcoin White Paper:
https://bitcoin.org/bitcoin.pdf
Payment and Financial Geography: Crypto Adoption from a Global Perspective:
https://s.foresightnews.pro/article/detail/48294
Eurosystem launches digital euro project：
https://www.ecb.europa.eu/press/pr/date/2021/html/ecb.pr210714~d99198ea23.en.html
White Paper on the Research and Development Progress of China's Digital RMB
http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4293590/2021071614200022055.pdf
The crypto ecosystem: key elements and risks
https://www.bis.org/publ/othp72.pdf
