In Episode 50 of Hidden Forces, Demetri Kofinas speaks with Nevin Freeman, the founder of a new stable-value cryptocurrency project, about the hard problem of currency. 2018 is the year of the stablecoin, or so says Nevin Freeman, the founder of a new stable-value cryptocurrency project based in the San Francisco Bay area. In order to understand what stablecoins and how they work, we first need to understand money. In order for something to qualify as money, it has traditionally needed to function as both a store of value, and as a medium of exchange for goods and services. The medium of exchange component of money allows it to function as a vital coordination mechanism for society, allowing humans and international governments and organizations to collaborate on a massive scale. Money is thus an intrinsic part of our capitalist infrastructure and, without currency, many of our most important institutions and organizational structures would collapse. Yet, our system of money and credit is not without its share of problems. Middlemen, financial intermediaries, and other central organizations often charge exorbitant fees for their services. These same intermediaries often function as “gatekeepers,” permitting or preventing access to financial counterparities at their discretion. The mismanagement of our financial system by such institutions has become a major source of systemic risk, the brunt of which is disproportionately carried by those at the bottom of the economic pyramid. Cryptocurrencies offer a possible solution to many of the most prominent problems associated with fiat currency systems. However, there are significant roadblocks on the path to widespread adoption. As we mentioned, in order to qualify as money, a currency needs to both the medium of exchange and store of value functions. This becomes difficult to do when currency volatility can wipe out 50% of your net worth in a single day or double the cost of your company’s inputs overnight. It is no secret that crypto markets are remarkably volatile. Even the most prominent cryptocurrencies - Bitcoin and Ether - fluctuate wildly. Unfortunately, it’s impossible for a decentralized currency to function as an effective store of value if its price varies by as much as 15% on any given day and in any given direction. Even if the cryptocurrency in question were rarely to drop in price, upside volatility can create a speculative feed-back loop that discourages anyone from actually using it as a medium of exchange. Why would you pay someone’s salary in bitcoin if you expected the currency to be worth more after you sold it? In this sense, even a highly volatile asset with little downside risk that serves as a great store of value can still be a poor medium of exchange. Until cryptocurrencies are able to function as both a store of value and as a medium of exchange, they are unlikely to become truly mainstream or see real-world adoption. Yet, as previously mentioned in the case of bitcoin, a cryptocurrency’s capacity to store value directly undermines it’s use as a medium of exchange. How do we resolve this paradox? This is where stablecoins come in. They aim to solve the problems of our volatile crypto markets by establishing price-stable cryptocurrencies that are pegged to some other stable asset, for example, the US dollar. Notably, these pegs are not determined by supply and demand. Instead, stablecoins effectively “price themselves” by making a standing promise to fulfill any buy or sell order at a set price, regardless of changes in demand for the currency by market participants. In traditional currency pegs and exchange rate mechanisms, currency boards manage the value of the peg by overseeing the promise to buy or sell at a preset conversion price. So, how does a currency peg work in the case of stablecoins? Here is an overview of how the most prominent stablecoin projects on the market promise to do this today: Traditional asset-backed stablecoins: In short, under t