SDF Blog

What’s In a Name? Why Consumers Need Stablecoin Standards

Asset-backed tokens are not a new concept in cryptocurrency. Before "stablecoin" was even a word, fiat-backed digital assets were issued on blockchains, including Stellar. As the space matured, what it means to be "backed" by another asset and how that affects the stability of the token's price compared to the referenced fiat currency (aka “the arrangement”) evolved. Still, we continue to use the term "stablecoin" across various token arrangements.  

Unfortunately, some tokens, like UST and HUSD, have proven unable to live up to the stable name, yet, we continue to see the industry use this label for existing and forthcoming assets. The public, media, and even policymakers still reference UST as a stablecoin even after it lost $40 billion in value. The sweeping use of the term highlights the urgent need for clear standards that issuers must meet to earn the label stablecoin. Stablecoins should be stable.

We saw a similar story unfold in the organic food movement. In the beginning, the "organic" label was primarily used by small farmers trying to distinguish their products. But as the movement toward healthier, sustainable alternatives gained popularity, the broader food industry began to co-opt the word without explaining how its practices were "organic" at all. Eventually, USDA stepped in to create a uniform federal standard that defined the designation and a certification process to ensure the label did not mislead consumers. Ultimately, this led to consumer empowerment, knowledge, and trust in what it meant to be "organic." 

This summer’s events have made clear it's time we do the same for "stablecoins." But unfortunately, although policymakers and regulators globally have acknowledged the importance of this issue, few pieces of legislation have crossed the finish line. And the ones that have been close have seen fierce opposition.

Only with a federal or even global standard for stablecoins can we truly begin to deliver clarity to consumers. A legally established and enforceable stablecoin definition will go a long way to building the trust required for this technology to be a viable payment alternative ready for mass adoption. Until then, we leave consumers seeking to harness blockchain technology safely for real-world use cases, like payments, without the protections they deserve. Not to mention the risk of undermining the term to mockery.

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