What are the differences between tokens and stablecoins ?

We lived in a world where everything could be called into question.

If before everything could be doubted and mistrusted, with the emergence of blockchain, people were deprived of the ability to doubt the part of information stored in the blockchain. The monopoly on trust used to belong to governmental structures, “independent” auditors, and banks. Now we have to trust stubborn numbers and impartial smart contracts.

Now anyone can create their tokens and back them with any kind of collateral or, on the contrary, declare that their tokens have no backing and only have a limited supply. And nobody has the opportunity to doubt in this. A token can soar in price simply because there are many people willing to buy it while the supply of tokens is low. The law of supply and demand still applies.

Blockchain provides transparency of numbers and algorithms, but many things need to be confirmed or disproven in real life and practice.

So what are the differences between tokens and stablecoins? Technically, there are no differences. We can take the same smart contract and deploy it on the blockchain, but name it a token in one case and a stablecoin in another.

The difference lies solely in what you declare. How you label what you have created. If you don’t say anything, it’s just tokens. If you claim that your tokens represent some real-world equivalent, then your token is called a stablecoin. And then you become the one who must confirm the claimed equivalent relationship.

As you understand, in the first case, nobody has the opportunity to doubt what has happened, but in the second case, your statement comes into play, meaning the human factor and connection to the real world. And any claims need to be verified. If the claims are confirmed, and the issuer truly backs their tokens with the declared collateral, the token ceases to be just a token and becomes a stablecoin.

The problem lies only in the lack of guarantees that the issuer will always fulfill the stated obligations.

However, over time, the same thing starts to happen with stablecoins as we see in the traditional fiat world with money when the obligations of the issuer are delegated to those who accept these currencies (as payment or salary). Stablecoins, like money, begin to live their own lives and often do not return with demands for their backing to their issuer. To be precise, with money, there is a complete delegation of requirements to those willing to accept them, as their issuers — central banks — have completely relinquished responsibility for their backing.

That’s why regulators are not fond of stablecoins because it replicates the functioning of modern money and payment systems.