The first stablecoin that’s actually stable

because USDC and USDT are not.

8 min readApr 22, 2024

When you hear the word stablecoin, you think: USDC or USDT.

Basically, a token whose value doesn’t go up and down and you’d be right. Fiat hasn’t gone up in over a century; it’s been down only.

Fiatcoins are supposed to be a way to escape the volatility of crypto. But that sort of logic is satirical, considering cryptocurrencies were invented partly because fiat was rapidly devaluing.

In a nutshell, our solution to the problem created by our solution to the original problem is to go back to the original problem but on-chain.

If that sounds convoluted, it’s because it is.

Calling a fiatcoin stable is a bad joke and a self-own for the crypto industry.

Up until a few weeks ago, I convinced myself that it was OK. But now that I know there’s another choice, I can’t help but feel the entire concept was stupid in the first place.

What do I mean by that?

To understand why I think fiatcoins are dogshit, let me briefly refresh your memory on how bad fiat is.

What is wrong with Fiat?

Fiat has three major problems:

1. Centralization

Control of fiat is subject to the whims and caprices of a small number of people.

What’s worse is that these people are actually incentivized to create monetary policy that furthers short-term economic and political agendas which are usually at odds with long-term alternatives.

If you make hard decisions, you probably won’t be re-elected. So elected officers are usually incentivized to do things that will likely be bad for the economy long-term because they’re good short-term.

2. Ease of printing, leading to inflation and eventually hyperinflation

Because of the nature of fiat without the gold standard (or any other form of regulation), the people in charge can print without a brake.

I think there’s no better example than the fact that the US money supply grew by 20% in 2020 alone.

The dollar was created in 1792. It turned 228 in 2020. And the money supply grew by 20% in one year. Here’s a visual showing how much purchasing power a dollar has lost since 1913.

To explain how ridiculous this is in basketball terms, it’s the equivalent of a basketball team scoring 190 points in a single game and scoring only 334 points in the entire season.

The third and final problem of fiat is:

3. Lack of financial autonomy.

In the Tradfi world, the concept of “your money” is a mirage.

Governments can decide to perform capital control and limit how much of “your money” you’re allowed to spend per time. Even banks can temporarily restrict access to “your money.”

Simply put, with fiat, the notion of financial autonomy is a joke.

So we’ve reestablished how terrible fiat is and the common response is

”…bitcoin fixes this…”

Actually, not quite yet

Compared to other cryptocurrency, Bitcoin is like a rock welded and gorilla glued to a mountain — it’s stable. But it’s still far too volatile to use as a currency.

Imagine the people who bought the picotop in late 2021. For them, Bitcoin has lost about 26% of its USD value to date.

Prices as at Feb. 10 2024. If they’re much higher or lower now, that just supports my point.

There’s also the problem of fees and block times that Bitcoin is grappling with. So while we expect that one day (hopefully soon,) Bitcoin will become stable enough to use as currency, it’s not there yet and we don’t know how much longer it will take.

It was this line of reasoning that led us to create the first set of stablecoin s— fiatcoins.

Fiatcoins

Investors needed a way to escape the violent ups and downs of crypto, so USDT was created in 2014. Fiatcoins for many intents and purposes, are stable but the problem is that we’ve round-tripped and it’s somehow even worse now.

Fiatcoins are subject to all the same problems as fiat and then some.

You might think you have full autonomy because it’s on-chain, but Circle and Tether can unilaterlly freeze your assets. This has happened several times already.

And since fiatcoins are pegged to the dollar, they suffer from all the money printing and bad fiscal policy.

But it gets worse.

Fiatcoins, specifically USDT (the biggest one), add another point of failure to the cocktail above.

You see, Tether doesn’t maintain a 1:1 backed reserve. That’s fancy talk for Tether invests a portion of the reserves. In the event that Tether is irresponsible with the investment, they can become insolvent and default, and USDT will depeg.

USDC and innovative stablecoins like Ethena avoid this trap but they still have all the problems of regular fiat.

In short, with fiatcoins, you’re getting all the problems of regular fiat and if it’s not a decentralized option, you have to trust the issuer as well.

We clearly need another way.

Enter flatcoins.

Flatcoins

A flatcoin is a relatively new type of stablecoin that is pegged to a basket of goods that are inversely correlated to fiat.

In English; a flatcoin appreciates at the same rate that fiat is depreciating.

The premise of a flatcoin is that 1 unit can buy the same stuff today as it could 10 years ago, irrespective of the fiat value of said items.

If that sounds familiar, it’s because that’s what we wanted when we started this spiritual journey.

But how does a flatcoin work?

There are probably quite a number of ways to create a flatcoin; but there’s one that does everything right: the International Stablecoin (ISC).

ISC

The ISC is a flatcoin that is pegged to a basket of inversely correlated RWAs. The basket includes gold, bonds, t-bills, equity, and some fiat.

The exact mechanics of how the ISC works are complex but at its base, the ISC is similar to a fiat-collateralized stablecoin (without the problems.)

How the ISC works

When users buy ISC tokens, the ISC issues new tokens on-chain and uses the cash to buy assets.

The major difference between the ISC and fiat-collaterized fiatcoins is that instead of holding just cash or investing it and keeping the returns, the ISC issuer invests and directs the returns back to the reserves.

Let’s take a closer look.

The ISC has two major parts: the issuer and the reserves. Each reserve has two asset managers: Digital and RWA.

Let’s look at each section in detail.

The Issuer

The ISC issuer is responsible for minting, burning, loaning, and recalling ISC. It mints ISC tokens, loans them to the reserves, recalls the loans, and burns the tokens as necessary.

The Reserves

The ISC runs multiple independent reserves to maximize stability through diversification. The better the diversification of a portfolio, the higher the stability. The idea is that it would take WW3-level events to destabilize the ISC’s portfolio.

Each reserve has two asset managers: the RWA Manager and the Digital Asset Manager.

The RWA Manager is responsible for making real-world trades. And the Digital Asset Manager is responsible for maintaining ISC’s peg on-chain. It ensures that ISC isn’t ever trading above or below the target price through arbitrage.

These two subsystems (Issuer and Reserves) are the backbone of the ISC.

And I know what you’re thinking:

“This all sounds like a TradFi asset manager with extra steps and shitty returns.”

Yes, and that’s exactly why the ISC works.

Let me explain:

Why the ISC makes sense

1. ISC’s core principle is stability.

The ISC is never trying to outperform the markets; it’s only ever competing against inflation. This means it can take significantly less risk to achieve its objectives. The asset allocation is the most obvious evidence of this.

It’s gold, bonds, T-bills, and global equity. It doesn’t get more vanilla than that.

This approach is important because there’s no pressure to make huge gains, so the ISC can focus on charting a steady course. And it’s not just qualitative analysis; backtesting their asset allocation against the best fiat shows massive outperformance and great stability.

ISC and Top Fiats against basket of top fiats [2]

In short, the ISC can do what it’s promised because it’s not doing too much.

2. Community-controlled

Remember how one of the biggest problems with fiat is the misalignment of incentives for holders and policymakers?

The ISC is the opposite.

The ISC issuer and RWA manager are controlled by a 2nd-generation DAO. That means there are council members (who are subject matter experts) tasked with strategizing and recommending actions.

However, all the decisions they make are subject to the governance token holders. Governance token holders can vote and unilaterally reverse or veto any council approvals. They can also propose changes of their own and remove any or all council members.

In essence, it is physically impossible for the team to screw over token holders. And the inclusion of an expert council also makes it hard for holders to screw themselves over.

3. Everything is verifiable

The on-chain portion of the ISC’s activities is easily verifiable but they’re also doing the best on the RW side. An auditor chosen by the DAO audits the ISC’s reserves every quarter. So you can always be sure about the state of the reserves. They also publish their reserves on their dashboard in real time.

I cannot emphasize enough how amazing this level of transparency is.

4. It’s built on Solana

Solana is cheaper and just as fast, if not faster, than any centralized money system. Building ISC on Solana allows it to avoid what is one of the biggest hindrances to using Bitcoin as money: throughput.

And the final reason:

5. It works

The ISC isn’t a new project; it’s been lurking in the shadows for almost a year now, and it’s been doing exactly what it promised. There’s hard evidence that this isn’t just a concept.

These five things make the ISC case for me.

There’s a lot more nuance to the ISC, their operations, and asset allocation; you can find all of it in their documentation. But their core thesis is sound.

They’ve created what is the most practical stablecoin to date. Also, NFA, but Toly follows their Twitter.

As I conclude, let me say I understand if you still feel some resistance. When I first learned about the ISC, every cell in my body was screaming: This is too good to be true.

But no matter how long I think about it, I can’t find any logical reasons why.