We explore the role Stablecoins might play in increasing volatility through correlation with traditional markets and what this means for two parallel financial systems.
Consider this, the high yields in crypto markets is to attract liquidity, and while the risk-on risk-off equation at play will attract capital and issuance of Stablecoins it also inherits the mechanics of the global macro, which implies that any shifts in traditional finance capital markets such as interest rates, money supply, inflation etc. which plays an important role in calculus that goes into asset valuation may begin to impact the crypto market which in principle is meant to be independent and disruptive.
Do these coins present the best opportunity for DeFi to solve the Stablecoin trilemma of scalability, decentralization and efficiency but is there a better way? This equation is worth the study and interesting, but also ironic.