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Stablecoins Are Defense Tech

Stablecoins are defense tech.

This idea has been running laps in my head since 2018. At the time, I was in DC meeting with regulators about Libra (Meta’s, or, at the time, Facebook’s, stablecoin project). One of my personal motivations behind Libra was national defense.

The basic idea is that the future of money will be more digital than it is physical. And stablecoins – in this case, cryptocurrency pegged to a stable currency like the USD – are the best tool we have for digitizing the dollar. If we don’t digitize the dollar, we risk losing its position at the center of the financial world. If that happens, we will lose a critical pillar of US stability and leadership that most people are taking for granted right now. And if the US government doesn’t recognize this soon, someone else will. (If they haven’t already, 👋🏻🇨🇳). Hence the defense angle.

If you are a stablecoin founder and you haven’t been thinking of yourself as a defense tech company, think again. And if you are a regulator who has been sleeping on stablecoins and the role they will play in the hegemony of the dollar, wake up.

This is the moment to act. The stablecoin market cap is near $150B, and adoption continues to increase.

If we want to create stable infrastructure – for finance and even democracy (bear with me) – then we need to move quickly.

And with that…

Why Stablecoins Are Defense Tech

Let’s start with a quick history lesson.

The dollar has been the world’s principal reserve currency since the aftermath of World War II. This was decided at the Bretton Woods Conference in 1944, which was also the crucible for the World Bank and the IMF.

Europe’s large financial centers were smoldering, and the US had a moment to step up and cement the dollar at the center of the post-war world economy.

Bretton Woods formalized things by creating a system of exchange rates where other countries could measure the value of their currency in relation to the dollar, which was, at the time, pegged to the value of gold.

Of course, the dollar is no longer pegged to the value of gold. But it still represents the strength, stability, and geopolitical heft of the US. So we continue to cruise along on the power of that idea.

Being the world’s reserve currency is not a right. It is a privilege. It comes with some financial perks, like never having to go through an exchange process for trade, or the fact that we borrow money at lower interest rates (and, in a different light, it makes it easier for us to impose sanctions on other countries).

But the real power is security. If the dollar were to collapse it would have huge repercussions throughout the world economy. Much of the world’s monetary system is held together by the fact that the US is stable. Which means we are less likely to experience targeted attacks, financial warfare, hostile takeover…or worse.

This is a fact that we even recognize in our own published national security strategy. International financial institutions are a “force multiplier for our values and interests.”

And it’s a fact that China is eager to change.

Recently, the CCP published a report on “US Hegemony and Its Perils” with an entire section focusing on the dominance of the dollar. A quote from that section: “America’s economic and financial hegemony has become a geopolitical weapon.”

From our American POV, the USD not as much a weapon as it is a shield. Though, China’s use of this language is telling. There are plenty of countries out there that would love to wield this world reserve currency status as a weapon.

It has always confounded me that there are still US regulators that don’t see safe and secure stablecoin projects as our (benign) trojan horses for continued dominance of the US dollar. If you want to proliferate your currency through many stable assets, across many secure exchanges, what better option do you have than a stablecoin? It’s also free marketing for USD – an immediate way to give access to those dollars to millions more people around the world who want them through a decentralized network.

If we don’t find some way to protect that brand – someone else will seek to use (or misuse) it.

The Good News

In spite of ourselves, there’s plenty of good news.

99% of stablecoin projects are pegged to USD today.

Ironically, the fact that we haven’t moved fast or really at all, to digitize the dollar in a top-down way may be the best case scenario. It has allowed us to grow the ecosystem organically.

In the past, US hegemony has been a push dynamic. But digital hegemony has been more of a pull than a push. There’s evidence that people want stablecoins – and entrepreneurs have built solutions. It’s actually been beautiful to watch.

A diverse stablecoin ecosystem is exactly what we want to see. Not just for consumers, but for national security. Many projects pegged to the USD, means the dollar is way harder to overtake.

But we do need regulators to do one thing: clarify the rules of the game, which can be an extremely low lift. For example…trademarking USD.

Trademarking the USD

Let’s go back to DC in 2018. I remember being in a meeting with Treasury and asking them if “USD” was trademarked. “Why?” they asked as if I was crazy.

If you think about it, there’s no official definition of a true digital US Dollar, at least from the government’s perspective. That means basically anyone can create a digital “US dollar” – put differently, anyone could counterfeit a US dollar in 15 minutes. We could launch NFX-USD today.

On a bigger scale, that hypothetically means China is under no obligation to even call an RMB-backed stablecoin what it is. They could literally use the brand of the US dollar, and connect it to their currency under the hood. No one is watching.

Instead of the US government building its own digital currency (which they have considered doing), they just need to clarify the rules of the game.

Trademarking the USD starts with that real government-backed definition of a US digital dollar. It ends with a set of requirements that further enables the good guys by giving regulatory clarity to entrepreneurs. And, it protects consumers from the bad guys at the same time.

Some suggestions for those requirements:

  • Fully backed reserves
  • Auditable finances
  • KYC-d founders

This effectively allows the government to outsource building, growing, and sustaining the USD in digital space to capitalism.

It’s simple, and beautiful – if we make the rules clear.

Call to Founders

I would be far more sleep-deprived right now, if it weren’t for one thing. Every day, I meet more and more stablecoin founders. You are motivated, talented, smart. You’re scrappy and savvy and see this problem for what it is.

We have a network of stablecoin founders throughout the US who can step in to solve this problem for us, if we provide them with the resources and support they need. The crypto-obsessed out there like to focus on individual coin market caps, but come on guys: this is a team sport.

Technically and organizationally, stablecoins will allow the dollar to digitally proliferate. We have decentralized teams of founders, not to mention the decentralized nature of crypto, going for us. It’s such an elegant solution, fueled by the American Dream, if we give these networks what they need to thrive.

This is what I hope all stablecoin founders will come to realize, if you don’t know it already. Your work is a matter of national defense, and even a matter of democracy.

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Morgan Beller
General Partner
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