Secondly, trust issue can be eliminated. In Korea, there’s a saying that “once you lend money, you lose a friend,” as without a formal contract, there’s a high chance that you may never get your money back. Even if you had one, taking things to court requires one to pay for the legal services.
“About two-thirds of people who lend money never see it again.”
That problem is eliminated via smart contracts, where codes hold certain conditions so that transactions occur when those conditions are met. For example, if there’s a condition that says the next 10 coins my friend gets in his Stablecoin account will come to me, then there’s no way for him to stop those 10 coins from leaving his wallet once that condition is met. No friends lost and no need to hire an enforcer if the sum gets large!
This also applies to our trust with banks and governments, which have the power to do what they want with our economy, especially within the fiat currency system that is not pegged to a scarce or fixed resource like gold. There is no need for transparency in how decisions are made and no way to ensure that economic growth is distributed fairly. Central banks have control over credit supply, liquidity, interest rates and money velocity and if they make poor decisions, like they did in 2009, we suffer the consequences.
As fiat (which in Latin, means ‘let it be done’) currency is technically backed by nothing, it is fair to say that our currency is completely based on faith that you can exchange your money with goods and services.
Why do we live in a world where the power belongs to a few? It’s because the Federal Reserve System was made by a few. One of the founding members, Frank Vanderlip, the president of National City Bank of New York, said,
“I was as secretive — indeed, as furtive — as any conspirator. Discovery, we knew, simply must not happen, or else all our time and effort would be wasted. If it were to be exposed that our particular group had got together and written a banking bill, that bill would have no chance whatever of passage by Congress.”
But if it is driven by smart contracts, then we can add more consistency in how decisions are made and prevent a centralized entity from suddenly printing a lot of free money, which causes rapid inflations.
Moreover, if the Stablecoin takes Proof-of-Stake consensus algorithm, where the amount of governance you have is proportional to the amount you stake, then one can no longer solely work for their own interest, as they will be slashed for making decisions unfavorable to the community. Those who govern in this system profit by voting and adding blocks to the blockchain. Hence, as long as they don’t get slashed, they will maintain profitability.
This ensures that those who govern the Stablecoin works for the community’s best interest. You could also help the best governors have a greater voice by contributing your own money to their stake. In return, you get to share the profit when the governor you decided to stake on (also known as the validator) profits.