Stablecoins counter Operation Chokepoint.
Boosting financial inclusion is one of the strongest benefits of cryptocurrency. However, the banking crisis has ironically led to the de-banking of the crypto industry itself, at least in the United States. The situation with Silvergate, Silicon Valley Bank, and Signature, the three crypto-friendly U.S. banks, resembles what Nic Carter referred to as “Operation Chokepoint 2.0.” While there is merit to this claim, some naysayers peddle conspiracy theories harshly.
Signature did not face a bank run, but the Federal Deposit Insurance Corporation took over the bank quickly. Anonymous sources even claimed that the FDIC asserted that any buyer “must agree to give up all the crypto business,” but the agency later retracted those claims.
I don’t want to alarm, but since the turn of the year, a new Operation Choke Point type operation began targeting the crypto space in the US. it is a well-coordinated effort to marginalize the industry and cut of its connectivity to the banking system – and it’s working
— nic carter (@nic__carter) February 7, 2023
Cryptocurrency not only has the resilience but also the tools to fight back by using stablecoins to reduce dependence on banks. Besides resolving an immediate crisis, it can establish cryptocurrency as a self-sufficient and parallel financial system, which was Satoshi’s vision.
U.S. regulators are hurting themselves
The reason why most regulatory authorities, except for some progressive jurisdictions, oppose cryptocurrency is that their power rests on the toxic relationship between governments, money printers, big corporations, and oligopolies disguised as banking systems. The non-intermediated, permissionless, and autonomous systems that cryptocurrency enables threaten this anti-individual nexus to its core.
The journey towards a more equitable, individual-centric world of cryptocurrency was never intended to be easy. The hyper-aggressive response from regulators is in line with expectations. However, the authorities, particularly in the U.S., do not seem to realize that their actions are self-destructive.
Related: Did regulators intentionally cause a run on banks?
Technological progress has been crucial in taking the U.S. to its current position of dominance in global geopolitics. Emerging crypto-based technologies enabled the next giant leap in this direction. And if only the regulators could overcome their greed for short-term power and control, they would see how stifling innovation isn’t in their best interest.
For instance, the ongoing banking crisis, which is very much due to misguided policy action and selective enforcement, ultimately hurts financial stability in the United States. Moreover, if it’s indeed a coordinated effort to de-bank the crypto industry, the average U.S. taxpayer is bearing most of the brunt, despite staying within legal limits.
Some projects have found a scalable way to assist crypto firms in becoming regulated institutions, such as Archblock, which onboards U.S.-based community banks to expand on-chain “real-world asset” financing for regulated entities.
While this approach might eventually resolve some regulatory tussles, a sizeable section of the global crypto community is rooting for more radical solutions.
Crypto firms don’t need banks when they have stablecoins
Stablecoins have been under much scrutiny since Terra’s “algorithmic” coin, TerraUSD (renamed to TerraClassicUSD, crashed last year, setting off a chain of events that partly led to the FTX fiasco. The crash wiped out an ecosystem worth $40 billion, but it also served valuable lessons in due diligence, overexposure, and risk management.
Something like Operation Chokepoint 2.0, either actual or hypothetical, is possible because crypto companies and investors use banks as on-ramps or off-ramps. There are practical reasons for this choice: one cannot buy crypto with cash, for example, and must pay with U.S. dollars from their bank account. Even while using an exchange, they need bank transfers to deposit fiat.
Related: The world could be facing a dark future thanks to CBDCs
However, involving banks so much is not necessary. Stablecoins can offer the fiat tokenization services that crypto companies depend on banks for with much less risk and despair. The process is not decentralized, but neither is banking. It’s not about decentralization here since the goal is to connect centralized and decentralized finance while minimizing counterparty risks.
The former CEO of BitMEX, Arthur Hayes, wrote an informative blog in March advocating for stablecoins over banks. He presented a detailed argument for this and proposed a new stablecoin model called the Satoshi Nakamoto Dollar or NakaDollar (NUSD). This model utilizes Bitcoin (BTC) and inverse perpetual swaps in a way that doesn’t involve banks in the issuance or redemption process.
Proposals like NUSD demonstrate our collective desire to resist regulatory uncertainty and aggressive attacks. As cryptocurrency evolves, there will be fewer opportunities for regulators to intervene and we will have more robust alternatives to traditional systems.
Innovation is not just a business model, it is our greatest strength. Through innovation, cryptocurrency will overcome all obstacles. We must continue the show because future generations deserve a better world.
