Native assets under regulatory pressure

Regulators are concerned with how to properly regulate the blockchain industry. They strive to have at least partial control over how people use decentralized networks. Cardano has a native assets feature. A third party cannot prevent Cardano users from spending their assets in any way. That’s great. But is this really the best path to success for the project?

This article was prepared by Cardanians with support from Cexplorer.

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Cardano does not allow Tether and Circle to mint USDT and USDC directly on the blockchain. But I don’t think it’s necessary if we can have these stablecoins through bridges. Bridges pose a certain risk, but that is mainly technological. Sooner or later there will be decentralized and reliable bridges. I don’t think it is possible for Tether, Circle, PayPal, and other companies to make sure that their stablecoins are not used in other ecosystems and a wide range of second layers without their consent (that is, the possibility of control over them). Let’s wait and see how this option develops.

It would be easy for Tether, Circle, PayPal etc. to make sure their stablecoins are not used in other ecosystems. They simply freeze the address on the Ethereum / Solana / Avalanche, or whatever native chain, side of the bridge. Simple. Now every derivative (wrapped) USDC / USDT etc. on the Cardano side of the bridge is un-redeemable and instantly worthless.

We absolutely need a truly decentralised stable coin like Djed.

It is such a pity that the current Coti implementation of Djed is handicapped so that the Shen token does not properly reflect it’s true value. We really need the beautiful extended Djed design properly implemented, and fees minimised. I think it would be absolutely worth it to pay IOG with Catalyst funding to properly implement extended Djed, with minimal fees, and 100% of such fees going to Shen holders. Djed could be such a game changer for Cardano.

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I just posted as a separate topic why Djed is broken.

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I agree that companies like Circle and Tether could freeze the addresses from which the tokens got to the second layers. I can imagine a situation where there will be many second layers on Ethereum and some will be private. If there was a private bridge, companies would have to freeze all addresses that touched the private network.

Another question is whether it would be legal. In the terms of use, they reserve the right for similar behavior, but I don’t think it would be acceptable in the long term to simply confiscate users’ money like this. It would probably end up in court.

Cardano needs its own USD-backed stablecoin. I’m more into algorithmic stables like Djed, but I’m afraid that people are worried about this variant because of the collapse of the Terra project.

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It is going to be really interesting to see how such things play out. I agree with you that it should be fundamentally illegal to freeze users assets when there is no evidence that they have done anything wrong. However, that is effectively what my bank account in Australia has just done. They are currently blocking all transfers to any crypto exchange. I am no longer allowed the freedom to choose how and where I spend my money.

I can see a Govt entity passing some regulation to freeze stable coin accounts for “financial stability” reasons at the first sign of some market stress.

I think the crypto market is fundamentally incompatible with the traditional finance system. The traditional finance system relies upon:

  • reversible, mutable settlement
  • settlement at end of day or even month
  • sticky bank deposits

I think if crypto gets much bigger then we will see more problems like Silicon Valley Bank collapses due to people moving massive amounts of capital around with near instant non-reversible finality. The amount of equity that banks hold is not enough to keep them solvent in such a scenario.

Yet we can all see what the technology can provide and I believe people are going to want the fast settlement, liquid, permissionless world. I don’t think these things can now be unseen but I also think Govts are going to try implementing various capital controls.

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I love the idea of Djed and I think it will work. I also think a truly decentralised stable coin is a winner takes all market worth Trillions!!!

That is why I am so sad about Coti’s handicapped implementation. I think it is a massive missed opportunity for Cardano.

The only way I can reconcile this sadness is by thinking that there is likely to be significant turbulence ahead and therefore perhaps it will be good that Cardano’s DeFi remains somewhat handicapped for now.

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Unfortunately, my eyes have been opened somewhat and I am now quite pessimistic about Djed. See this post by @Neo_Spank explaining why I was wrong to blame Coti and my reply to it.