Stablecoins Might Have to Be Banks

A few years ago, the hot thing in crypto was the “initial coin offering.” I could tell you a story in which initial coin offerings represented a truly new and interesting way to fund projects. Before ICOs came along, projects — say, the development of a new internet thing — might be funded by a corporation, which would then own the project and make a lot of money if it succeeded. Or they might be created by volunteers in an open-source system, and then nobody would own the project or get rich. Or they might be funded by the government, which would then control the project and give it away or whatever. But the ICO said: “We can fund projects with money from their potential users, and then if the projects work out those users will get rich.”

This was an interesting idea! One reason it’s interesting is as a counterweight to the power of big tech companies: Instead of Facebook Inc. getting huge amounts of money from the community it created, Future Facebook could distribute those gains more broadly to the community. Another reason it’s interesting, though, is for incentives. When corporations fund projects, they hope to make money, so they fund projects that they think people will like. When users fund projects, hoping to get rich, the incentive to use the project is not just “this is a useful thing for me” but also “if I use it I’ll get rich.” It turns, like, file-storage systems into also Ponzi schemes: The community of users is also a community of speculators. It’s weird but also fun.