Stablecoins will become the de-facto settlement for trade in the years to come but… only stablecoins with specific qualities. When was the last time you had a good conversation about the danger of US dollar dependence and the emerging opportunity for stablecoins in global commerce?

Let’s first consider the opportunity and potential demand for stablecoins based on international trade:

• Annual global trade is currently valued around ~$23 trillion (in USD)

• International trade is responsible for 56% of the world’s economic value generation

• Half of global trade is in USD (although the US is only responsible for 10% of global trade)

Considering the USD deep entrenchment in global trade - with a borderline monopoly - why would that change? Why would we need another settlement currency for trade?

Here are three reasons global commerce will shift away from USD and towards non-USD pegged stablecoins.

#1 - Dollar Dependence is Fundamentally Unsustainable in Global Trade

It might feel like the US dollar is too big to fail but US monetary policy is in a dangerous place. With $31.4 trillion dollars of debt, the United States is now printing money to make interest payments. The dollar isn’t generating enough economic value to pay our debt so the solution is to just create more of them. This is a slide of devaluation that only moves one way.. As a currency, the USD virtual monopoly on global trade needs to be reimagined.

This consideration fundamentally alters the type of stablecoins that could be considered for a new international settlement layer.

Can we expect $15 trillion dollars a year of USD-backed global trade to balance on good faith in the dollar… in perpetuity?

That’s not stable or sustainable; that is why some of the world’s strongest economies are teaming up to try and replace the dollar as a reserve currency.

#2 - Composite Currencies Reduce Risk for All Parties

BRICS is a political alliance composed of Brazil, Russia, India, China, and South Africa (with dozens of other countries applying for consideration). For several years they’ve been working on a new indexed currency composed of each of their national currencies. The purpose of this index currency would be to serve as an international settlement layer that does not plan to replace their national currencies.

The primary advantage of an indexed currency like BRICS is that it reduces risk. It will be more stable than a single currency which, in turn reduces volatility and, in turn, reduces risk for both sides of the trade at the settlement layer.

Consider this:

If Brazil and India want to trade, what should they use? Should they use the (Brazil currency) or the (Indian currency)?

The surprising complexity of the issue is part of why the US dollar is so widely used in trade. But, again, we’re looking outside the USD for options.

The composite nature of an international currency is compelling, but there are other critical considerations in play.

We are watching money evolve in two directions at the same time.

1. Money becoming more centralized and nationalized

2. Money becoming more decentralized and denationalized

This observation yields a deeper question:

Would a decentralized, composite stablecoin be a more diplomatic and equitable settlement layer for trade as opposed to a centralized equivalent?

The answer is “yes”; However, there is still one essential quality that is necessary for any stablecoin that seeks to participate in global trade: data privacy.

#3 - Commerce will choose private stablecoins with auditability over transparent stablecoins

The best practice and the best utility for commerce is privacy with auditability.

Privacy for stablecoins unlocks layers of access controls and permissioning that provides the security, accountability and verifiability that is necessary in international business.

A private stablecoin seems to offer the best path towards accountability and compliance. A stablecoin that is both private and compliant has the opportunity to be used as a global currency for international trade and achieve large scale international adoption.

Will Silk have a role in the future of Global Commerce?

Silk is a private and reflexive stablecoin that is pegged to a weighted index of global value managed by a strong decentralized community. BRICS’ proposed currency index is built around inclusion in or exclusion from a political alliance (BRICS). The distinction between development priorities and binding obligations from sovereign entities matters.

Because of Silk’s decentralization, the DAO and surrounding community have the freedom to create the most stable and durable asset on the planet. The basket of currencies and commodities to which Silk’s price is pegged can adapt to changing geopolitical and economic environments and can withstand a number of unforeseen circumstances.

In Silk’s framework, inclusion in the currency index is based on economic performance rather than politics.

The approach to a currency like BRICS’, where there are political obligations and push and pull, can’t match the advantages of stablecoins like Silk.

Welcoming decentralized financial technology creates the best possible future for our global economy. It allows those who seek financial stability to focus on the quality of the tools rather than the uncertainties associated with the geo-politics of their chosen purchasing power preservation method. We need an approach that is inclusive, open-source, where all participants have a voice in what comes next.

Can Silk weave into the frayed fabric of our global economy and bring the utility of private settlement and decentralized stability? We believe it can.

——————————————————————————————————————————
Information provided in this post is for general informational purposes only and does not constitute formal investment advice. Please read the full disclaimer at shadeprotocol.io/disclaimer before relying on any information herein.