The Promise of a Dollar: The Philosophy Behind Stablecoins

“The bearer may redeem this token for one United States dollar.” Every stablecoin makes this promise, and every argument about stablecoins is an argument about it.

This essay is about the ideas behind stablecoins: what money is, who should be allowed to make it, and why a technology built to remove trust ended up running mostly on trusted dollars.

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I. Money is a promise someone keeps

There are two old stories about what money is. In the commodity story, money is a valuable thing (gold, silver, cattle) that people agreed to trade with, and its value lives in the object. In the credit story, money is a record of who owes whom, and its value lives in the issuer’s ability and willingness to pay. Coins and notes are tokens of that debt.

Modern money follows the credit story. A bank balance is the bank’s debt to you. An M-Pesa balance is a claim on funds held in trust. A shilling note is a liability of the Central Bank of Kenya. Modern money is a stack of promises, and what you hold depends on whose promise sits at the top.

A stablecoin is the credit story told on a new ledger. The token has no value as a token; a USDT is worth nothing as code. It is worth a dollar only because a particular company promises to swap it for one, and because enough people believe the promise to trade it at that price. That makes the central philosophical question unavoidable: what makes a private promise to pay as good as money?

Money is not a thing. It is a relationship of trust, written down.

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II. Nothing about it is new except the ledger

Stablecoins feel novel because the blockchain is novel. Almost every question they raise has been fought over before, usually more than once.

Year	Event	Why it matters
1837	America’s free-banking era	Hundreds of state banks issue their own dollar notes. Notes from distant or doubtful banks trade below face value, and “banknote reporters” print the discounts. Each dollar carries its issuer’s name. The BIS now calls this a lack of singleness.
1863	The National Bank Act	Washington imposes uniform, federally backed banknotes. One dollar becomes one dollar everywhere, by law.
1933	The Chicago Plan	Economists propose “100% reserve” money: issuers hold safe assets equal to every dollar issued, and do lending separately. A fully reserved, non-lending stablecoin is the Chicago Plan, built privately ninety years later.
1971	Nixon closes the gold window	The dollar becomes a promise backed by the US state alone, and it becomes the world’s reserve unit anyway.
1976	Hayek, Denationalisation of Money	Hayek argues that private issuers should compete to supply money. Crypto later adopts him as a patron saint.
1983	Hong Kong’s currency board	HK$7.80 = US$1, with every local dollar backed by US dollar reserves. A stablecoin is essentially a privately run currency board.
2001	Argentina’s convertibility ends	A legally guaranteed 1 peso = 1 dollar peg collapses when the reserves and the politics run out.
2007	M-Pesa launches in Kenya	A telecom company, not a bank, issues digital money that millions trust, backed by funds held in trust at banks.
2008	The Bitcoin white paper	“A purely peer-to-peer version of electronic cash”: money with no issuer, and so no one to make a promise.
2014	Tether	The trusted third party comes back. Traders want a dollar that moves at blockchain speed.
2017	DAI	The cypherpunk answer: a dollar created by code against crypto collateral.
2022	Terra	An attempt at a dollar backed by nothing outside itself. About $40B is lost in a week, and “code is law” meets the laws of economics.
2025	GENIUS, MiCA, Kenya’s VASP Act	States write rules to bring the private dollar back under public law, much as the 1863 Act did for banknotes.

Seen this way, the stablecoin is less a revolution than a return. It reopens the free-banking era on a global ledger, and the past century’s answers (reserve rules, redemption rights, supervision) are being applied to it again almost line by line. Gary Gorton and Jeffery Zhang’s 2021 paper Taming Wildcat Stablecoins makes this comparison in detail.

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III. The paradox at the centre

Bitcoin was built so that you would never have to trust an issuer. Its most-used descendant asks you to trust one completely. Tether and Circle can mint, freeze and, in USDT’s case, erase balances. A system designed to remove the middleman now moves more value through tokens that depend entirely on one.

This isn’t a betrayal so much as a finding. People wanted two different things from crypto, and it turned out they could be separated:

• The rails: a shared ledger, open 24 hours a day, global, programmable, where settlement takes minutes and anyone with a phone can take part.
• The unit: something stable to measure prices and savings in. Bitcoin’s volatility made it a poor unit for a salary, a rent payment or a remittance.

The stablecoin keeps the crypto rails and borrows the state’s unit. That is the whole design in one sentence: trust-minimized movement of a trusted promise. Whether that is a good bargain depends on which of the two you cared about more.

The market chose decentralized rails and a centralized dollar. Every stablecoin design is a different answer to how much centralization the dollar part needs.

The stablecoin trilemma

A useful heuristic: a stablecoin can be stable, decentralized (no one can freeze it) and capital-efficient ($1 of backing per $1), but only two at once.

You choose	You get	You give up	Examples
Stable + capital-efficient	A fiat-backed coin: $1 of cash and Treasuries per token, redeemable at par	Decentralization: a company holds the reserve and the freeze key, and a bank holds the cash	USDC, USDT, PYUSD (and M-Pesa by analogy)
Stable + decentralized	An over-collateralized coin: $150 or more of crypto locked per $100 minted, enforced by code and liquidations	Capital efficiency, and dependence on price oracles. In practice many such coins later added USDC to their backing	early DAI, LUSD, USDS (partly)
Decentralized + capital-efficient	An algorithmic coin backed by a token the system issues itself	Stability: it holds only as long as people believe in it	UST (Terra), IRON

This is a heuristic, not a theorem, and new designs keep trying to escape it. Ethena’s USDe tries to be stable and efficient with hedged crypto, but it moves the trust onto exchanges and custodians. Countries face a version of this choice too: the “impossible trinity” of a fixed exchange rate, free capital flows and independent monetary policy.

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IV. Five tensions that won’t resolve

A mature view of stablecoins doesn’t pick a side once and for all. It holds a few real tensions in mind and notices which way each one is tilting.

1. Censorship resistance vs. rule of law

An issuer that can freeze a thief’s wallet can also freeze a dissident’s. Tether has frozen billions tied to fraud and sanctions, which most people applaud. The same switch is a political lever. Because freezing is built into the code, the question is never whether money can be frozen, only who decides, under what law, with what appeal.

2. Code is law vs. law is law

Lawrence Lessig wrote in 1999 that in cyberspace, “code is law”: software sets the rules. Crypto took that as a promise. Terra tested it to destruction: code can enforce a mechanism, but it can’t make something worth a dollar. Every regime since then has put legal promises (redemption rights, reserve rules, priority in bankruptcy) back underneath the code.

3. Private money vs. public money

Hayek trusted competition between issuers to discipline money. The Bank for International Settlements trusts the central bank’s monopoly to keep it singular and elastic. The US is betting on regulated private dollars. Europe and China are betting on public digital money. Kenya is betting on M-Pesa plus a licensed door for stablecoins. The 1863 lesson suggests that private money tends to converge on public rules in the end. The open question is whether the issuers stay private once it does.

4. Dollar access vs. monetary sovereignty

For a saver in Lagos watching the naira fall, a dollar token is freedom: an exit from a currency they didn’t choose. For the central bank, every shilling or naira swapped for USDT weakens its tools for steering the economy. Both views are right. Thiers’ law (good money drives out bad when people may choose freely) says the dollar wins wherever local money is weak. That is why African regulators gate dollar coins and encourage local-currency ones.

5. Stability vs. reflexivity

Hyman Minsky argued that stability breeds instability: calm periods encourage the risk-taking that causes the next crash. A stablecoin that has held $1 for years earns a trust that makes a sudden break more violent. George Soros’s idea of reflexivity, where beliefs change the very things they are about, describes Terra exactly: confidence was the backing, so losing confidence destroyed the backing.

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V. A view from Nairobi

Most stablecoin philosophy is written in New York, San Francisco, Basel or Brussels. From there, stablecoins look like a threat to banks, a tool of dollar dominance or a payments upgrade. From Nairobi, the picture is different, and in one way more advanced.

Kenya already ran the experiment. In 2007 a non-bank began issuing digital money on a network it controlled, backed by money held in trust at banks, overseen by a central bank that chose to let it grow before writing all the rules. M-Pesa answered, in practice, the question stablecoins now raise: can a private, technology-run promise to pay become everyday money? It can, if the backing is safe, redemption is easy, the regulator is engaged and the network is useful enough.

What M-Pesa didn’t have to face is the currency question. It is a shilling promise. A dollar stablecoin brings in a foreign unit, and with it the problems of dollarization. Kenya’s VASP Regulations, 2026 reflect this: a full licensing door for stablecoin issuers, interest banned, shilling redemption for coins bought with shillings, at least 30% of funds in trust accounts at Kenyan banks, and the CBK holding the gate for foreign coins. The underlying choice is about which promises Kenyans may hold, and who decides.

Before Silicon Valley asked whether private digital money could work, Kenya had already answered yes, in shillings.

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VI. What the peg really promises

Take away the technology and every stablecoin makes the same promise in different words: during a crisis, you will be able to turn this into something worth one dollar. Fiat-backed coins keep it with reserves and law. Crypto-backed coins keep it with collateral and liquidations. Algorithmic coins kept it with belief, until belief ran out.

The philosophy of stablecoins comes down to judging promises: who makes them, what stands behind them, who enforces them, and whom they serve. Those questions are older than the blockchain and will outlast it.

Questions to sit with

1. Is a stablecoin closer to a banknote, a bank deposit or a money-market fund share? What does your answer imply for how it should be regulated?
2. Should an issuer be able to freeze your balance? Under whose authority would you accept it: the issuer’s terms of service, a foreign court, your own central bank?
3. If shilling stablecoins became common, would that strengthen or weaken the CBK’s monetary sovereignty compared with today’s mix of M-Pesa and dollar USDT?
4. Hayek believed competition makes money better. The free-banking era produced wildcat banks. Which history does the stablecoin market look more like today?
5. Which of the five tensions will tilt decisively in the next five years, and which way?

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Works referred to

• F. A. Hayek, Denationalisation of Money (1976)
• Henry Simons and others, the “Chicago Plan” memoranda (1933)
• Lawrence Lessig, Code and Other Laws of Cyberspace (1999)
• Satoshi Nakamoto, Bitcoin: A Peer-to-Peer Electronic Cash System (2008)
• Gary Gorton and Jeffery Zhang, Taming Wildcat Stablecoins (2021)
• Hyman Minsky, Stabilizing an Unstable Economy (1986)
• Bank for International Settlements, Annual Economic Report 2025, Chapter III

This essay was written with AI assistance as a companion to a five-phase stablecoin learning curriculum.