The Challenge of Achieving True Stability in Decentralized Currency

As the cornerstone of economic activity, the core characteristics of currency are worth exploring in depth. With the rise of digital currency, it has become especially important to re-examine the fundamental functions of currency in the modern economy. History shows that the definition of currency is not limited to technical features, but rather its ability to adapt to different stages of development. True currency must undergo a challenging evolutionary process, which many emerging currencies find difficult to achieve.

Complete Lifecycle of a Currency

To become a fully functional currency, an asset must successfully complete four key development stages:

1. Value Attraction: Currency first needs to attract capital and attention. Whether through precious metals, government backing, or potential appreciation, successful currency begins with attracting people to hold it. This initial appeal lays the foundation for subsequent development.

2. Scale Development: Secondly, the currency must achieve sufficient scale and liquidity to support meaningful economic activity. It needs enough market depth to avoid excessive volatility caused by trading and ensure the availability of counterparties.

3. Stability Mechanism: Third, the currency must develop a stability mechanism that allows it to be reliably used in commerce and contracts. This does not mean a fixed value, but rather predictability and resilience under market pressures.

4. Economic Practicality: Finally, the currency must be truly practical in ordinary economic activities, going beyond pure speculation. It needs to serve as a reliable unit of account, medium of exchange, and store of value across various economic environments.

Challenges of Coordination Issues

In the later stages, it is necessary to address the increasingly complex coordination issues that arise as the system scales up. Certain fundamental functions of currency, such as providing lender of last resort support, implementing emergency stabilization measures, or intervening in a crisis, are essentially public goods. These functions require participants to prioritize system stability over immediate personal interests.

In a purely self-interest-oriented Decentralization system, these key functions lack structural support. The system may operate well under normal circumstances, but it can collapse when stability is crucial. This kind of vulnerability has occurred multiple times in the cryptocurrency market, such as during the market crash in March 2020 and the collapse of LUNA.

These events reveal a profound truth: although cryptocurrencies theoretically advocate for trustless systems, their survival in crises often relies on the discretionary intervention of participants who possess implicit trust.

The Importance of Capital Formation

In addition to stability, a sound currency must also support capital formation - facilitating the lending process that drives economic productivity. This is another fundamental limitation faced by existing cryptocurrencies. Although crypto assets are increasingly used as collateral, they are rarely used as a pricing asset for debt. A fully functional currency must provide a stable unit of account for agreements across time.

Design a Complete Currency System

The limitations of existing cryptocurrencies are not temporary issues, but rather fundamental design constraints. Assets like Bitcoin and Ethereum were primarily designed for the early stages—attracting value and scaling development. Their fixed or highly constrained supply models created strong incentives for early adopters, but became a burden when stability and practicality are needed for broader adoption.

The Complete Structure of Sound Money

Based on these observations, we can define the elements necessary for a complete architecture of a currency:

1. Adaptive Supply Mechanism
2. Finally, Lender Function
3. Productive Reserve Utilization
4. Lending Market Basics
5. Transparent Health Indicators

The reason these features have evolved in traditional currency systems is that they are essential for currency to operate under diverse economic conditions.

Future Prospects

The evolution of currency is not only a technical issue but also a matter of addressing the coordination problems that increase with scale. A sound currency must be designed to operate throughout its entire lifecycle, equipped with mechanisms to adapt to changing conditions without the need for continuous external intervention.

This means that the created coin is effective not only under optimal conditions but also in various economic scenarios. Future monetary systems need to comprehensively consider the actual operating mechanisms of the coin at the design stage, rather than just focusing on technical features or short-term price appreciation.