It's interesting how we all talk about stablecoins as if they're something brand new. Sure they are in that they utilize blockchains and are nuanced in the ways they can be engaged with, however at their core they are promissory notes issued by institutions. That paper money you have in your wallet? It's called a banknote because it's a note issued by a bank (in the case of the US, the Federal Reserve Bank) promising to return whatever's backing it (nothing today, gold or silver back in the day). And guess what, in the 19th century, before the Fed, it was the state banks that issued these banknotes.

To me it's one of those "history rhymes" situations that we're discussing how digital banknotes, nay, stablecoins, should be issued. It's rhymes and not repeats because contrary to physical banknotes, what stablecoins are issued in exchange of is supposed to be the same as the currency of the stablecoin - the fiat currency.

Note	Backing	Currency
19th Century US Banknote	Gold & Silver	USD
Present Day US Banknote	Might & Magic of the US Government	USD
Hong Kong Banknote	USD	Hong Kong Dollar
USDC	USD and US Treasuries	USD

Example Banknotes

Then again, it's not hard to imagine a second iteration of whichever stablecoin act is legislated to permit the backing to be a more risky basket of assets, making stablecoins a de facto new currency. Perhaps not different that what Meta had in mind with Libra. This will end up causing stablecoin failures, consumer confusion, and many other issues. Exactly what happened with banknotes back in the 19th century, resulting in the centralization of the banknote issuing authority - first with national banks and eventually with the Fed.

Fast forward, why can't a third or fourth iteration of stablecoins rhyme with what happened to physical banknotes? I applaud the current administration in the US in its efforts to ban a CBDC given privacy concerns, however from a first principles view, a CBDC makes more sense than dozens of different stablecoins for each currency. All the reasons that make banknotes a CBC (central bank currency) apply to their digital equivalents. Except for the privacy issue.

Enter ZK. Actually no, I'm tired of ZK entering the room and promising to solve every problem from world hunger to blockchain scalability. Let's just assume that whatever technology it is, privacy will become a mainstream solution and will eventually make its way to average stablecoin transactions. So if a CBDC were to be issued with full verifiable privacy, how does the public benefit from stablecoins issued by private enterprises? Are there other nuances to the issuance authority of digital banknotes that differ from their physical counterparts? Nothing comes to mind, but I could be wrong.

One of my favorite ways to develop intuition about crypto and its use cases is to think of how its underlying technology enables a digital reality that is similar to the physical one in its scarcity and tangibility. To me a stablecoin that is private in its transfer, issuance and redemption mechanisms is pretty equivalent to a physical banknote. Banknotes become bankcoins. Or maybe bankcodes?