Aye U!?
In the beginning, humans fell in love with shiny rocks. The rest is history. Humans went to war when they didn't have enough shiny rocks and they noticed their neighbor suddenly found more. Humans love shiny rocks.
Shiny Rocks became the basis of our financial system, but this was a dangerous thing for a very long time.
Not Stretchy
When collateral assets are plentiful, then so is the ability to expand credit. 1 Gold Ounce at 2,000 USD in value can likely create some 1600 USD in credit. However, when the entirety of the willing gold supply is creating credit, then there is no way to continue expansion, without finding more gold.
The opposite can occur too, where there is too much gold and suddenly too much credit.
Deflation
Economic Output in times of boom can result in the decline of prices for consumers. Consumers inundated with a given product will naturally reduce their demand for it. So the producers will reduce the price further to incentivize commerce. This is the deflationary spiral that can infect the best nations on the Gold Standard.
Speculation
Gold, much like any other commodity, is subject to speculation as people are very sensitive to the supply of these assets. This introduces volatility based on an expected influx of supply. Occasionally, people would get lucky and discover a ton of gold, like New Spain brought back to Spain and inflate the currency to unsustainable levels.
▼Commodity Supply Speculation
Bitcoin halving is coming and when it is coming people speculate on how that will affect the price. The same thing happens with Ether as it is deflationary and burns.
Imbalance
Some nations would have more gold than others, increasing economic imbalance.
Crisis
In boom times, poor management is easy to let slide. Poor management would materialize in an extremely higher percentage of gold providing credit. This would mean the money supply has little room to contract, and requires a significant portion of debts to be paid back to contract.
When the crisis arrives, there is a need to expand the money supply. This can only occur if there is a sudden influx of gold to aid the expansion of credit, or debts are paid so that new credits can be allocated to new holes in the system.
▼How to Expand
Turn off the Gold Peg
Change the Gold Peg
Acquire more gold by any means to issue more credit
Decentralized Stable Coins
The very nature of these tokens is supposed to be decentralization, but the purpose of a stable coin is growth, investment and consumption. But if the lynchpin of an ecosystem can be rugged by the United States Government at any time, why would we call them decentralized? The truth is our stable coin markets exist at the mercy of someone else.
Then the next question is, how do we use these currencies without centralized services. The Gnosis Pay card has been recently released, but it still depends on a partnership with Visa, a centralized company that exists at the mercy of the state.
There is a significant need to innovate in these markets, much more than we are currently aware. The innovation will be fractionalized.
