Manage episode 230602066 series 1435652
A currency can fulfill numerous financial use cases.
One use case is store of value: currency holders can reliably expect their currency to maintain some value, though that value may fluctuate over time. Another use case is speculation: currency holders are owning currency in the hope that the market price of the currency will increase over time.
Bitcoin is a useful store of value and an instrument for speculation. However, Bitcoin still does not fulfill the financial use case that most people need from a currency: price stability. The price of Bitcoin fluctuates rapidly, making it difficult to use Bitcoin for small purchases such as coffee.
Imagine you want to buy a cup of coffee with Bitcoin. The coffee shop owner needs to offer the option to sell you that cup of coffee using Bitcoin as the medium of exchange. This owner must denominate the price of that coffee as some number of Bitcoin. Since the price of Bitcoin fluctuates so rapidly, the coffee shop owner needs to adjust the price of that cup of coffee constantly in order to make sure that the coffee is cheap enough for the consumer to want to buy it, but expensive enough to make a profit.
It is hard to assign prices to market goods in terms of Bitcoin because the currency is in constant flux. Even though many of us would like to use Bitcoin in our everyday lives, most marketplaces are denominated in US dollars or other currencies because a marketplace needs a stable currency in order to operate.
Rune Christensen is the CEO of MakerDAO, a system that provides a price-stable cryptocurrency. MakerDAO is an elegant set of currencies, collateralized debt, smart contracts, and other incentive tools that result in the creation of several transparent, decentralized financial instruments.
Rune joins the show to talk about the importance of stablecoins and how MakerDAO has engineered a decentralized currency that has maintained stability even through tumultuous market conditions.