The Era Ruled by Invisible Code: Part 1 Stablecoins

Part 1. Stablecoins

Human history is essentially the history of money. From shells to gold coins, banknotes, credit cards, and electronic payments, money has always made human transactions more efficient and has evolved alongside civilization. But now, we stand at the most fundamental turning point in this long evolution. Beyond simply digitizing money’s form, an era has dawned where logic and rules are embedded in value itself—the era of ‘Programmable Money’. 🌅

At the heart of this massive transformation lies the Stablecoin. Bridging the precarious gap between the volatile crypto asset market and the absolute stability demanded by the real economy, stablecoins serve as a critical link. Designed to peg their value to a specific fiat currency (mostly the US dollar), these digital assets combine blockchain’s transparency and efficiency with the solidity of traditional finance, functioning as an essential ‘Settlement Layer’ and ‘Digital Cash’ for a new economy beyond simple cryptocurrencies.

However, the emergence of stablecoins is not just a technological innovation. It has triggered an invisible ‘Digital Currency Cold War’ over global monetary sovereignty and financial dominance, pushing countries worldwide into a quiet yet intense strategic battle. Facing the specter of ‘digital dollarization’—the US dollar expanding its influence into the digital realm—nations are defending their monetary sovereignty with a ’two-track strategy’: developing central bank digital currencies (CBDCs) and fostering private stablecoins.

This blog deeply explores all aspects of this complex and layered ’new financial order.’ It dissects the technical foundations and mechanisms of stablecoins, analyzes the trust models and risks behind failures like the 2022 Terra-Luna collapse, examines the geopolitical conflicts sparked by stablecoins and countries’ strategic responses in the ‘digital currency cold war,’ and envisions how the ’tokenization revolution’—turning all assets from real estate to copyrights into liquid tokens—will transform our daily lives and investments through concrete scenarios. Finally, in the ‘post-Terra era,’ it highlights how global regulators are establishing new rules for the financial system and how regulation paradoxically acts as a ‘compass’ rather than a hindrance to innovation, helping readers become their own ‘wise navigators’ amid this great wave of change. Now, let’s embark together into the new financial world ruled by invisible code!

The Birth of Financial Robots: The Secret of Stablecoins 🤖

Bitcoin’s Limitations, Ethereum’s Solution

The 2009 launch of Bitcoin opened the revolutionary possibility of a ‘P2P electronic cash system’ that enables direct value transfer between individuals without intermediaries like banks. However, Bitcoin carried a fatal flaw: inherent price volatility. Receiving a salary or signing long-term contracts in Bitcoin, whose price fluctuates daily, was impractical. Moreover, Bitcoin’s scripting language was intentionally limited, making it difficult to program complex conditional transactions. It was like a ‘simple calculator’ good at addition and subtraction but incapable of complex financial computations.

Overcoming these limitations, Ethereum redefined blockchain technology from merely transferring money to a ‘financial smartphone’ platform capable of running diverse financial programs and applications. At the core of the Ethereum revolution is the Smart Contract. A smart contract is a computer program that automatically executes pre-programmed contract terms when specific conditions are met. It’s like trusting a vending machine not a shopkeeper—if you insert money and press a button, the drink comes out according to the machine’s rules. Particularly, the immutability of smart contracts means once deployed, the code cannot be altered or stopped by anyone, replacing trust in intermediaries with trust in code, laying the technical foundation for the era of programmable money. Money has evolved from a passive store of value into an active ‘financial robot’ autonomously executing complex contracts.

The Thirst for Stability: Why Were Stablecoins Needed?

While smart contracts enabled financial automation, Ethereum’s native asset, Ether (ETH), also exhibited high price volatility. Using a volatile asset for loan contracts or as a payment method fundamentally undermined smart contracts’ utility. To solve this problem, stablecoins emerged.

Stablecoins are crypto assets designed to be pegged 1:1 to major fiat currencies like the US dollar. They are hybrid digital assets combining the stability of traditional currency with blockchain’s technical efficiency, an indispensable prerequisite for the decentralized finance (DeFi) ecosystem to function properly. Without a stable value benchmark, implementing complex financial products on blockchain would be impossible. If Ethereum provided the sophisticated ’engine’ to execute financial contracts, stablecoins supplied the stable ‘fuel’ to keep that engine running smoothly. Their combination marked the true beginning of the decentralized finance revolution.

Continue to part 2. The Architecture of Trust: Dissecting Stablecoin Models and Lessons from Failures