Lombard Street 2021

Virtual currency markets have gone through similar cycles as those highlighted by Bagehot in 1873, modernizing his outlook over currency mechanics. The excess wealth created during the bull run of 2016-17 in the virtual currency markets had nowhere to go. This capital, combined with the advent of the Ethereum ERC20 token, allowed many companies to issue blockchain tokens and sell them to investors. The triviality of creating a blockchain token married to the excess capital led to an influx of newly-formed companies, both legitimate and illegitimate. This also led to the proliferation of “stablecoins”, which are parity-stabilized virtual currency representations of fiat currencies, primarily USD variants, initially used only by traders seeking less volatile refuges.

Stablecoins help manage market volatility by incentivizing protocol participants to stabilize the virtual currency with its represented fiat. With the volatility risk of unpegged virtual currencies is mitigated, stablecoins are now poised to become normalized within society as a form of payment and store of value. Thus, we are at the cusp of a financial revolution, the likes of which are more revolutionary than what Bagehot experienced and wrote about on Lombard Street. These stable coins will usher in the full-scale integration of the virtual world with the real world. The dawn of the virtual generation is here!

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