As if there were a glimmer of light

Throughout his life, Hayek maintained a wary distance from state power.

He did not believe that the state could manage currency well, just as he did not believe that a planned economy could safeguard individual freedom. In 1976, he published Denationalisation of Money, advancing a subversive proposition—Currency should be issued by private entities, with the market determining its merits and demerits.

At that time, the world was still reeling in the aftermath of the Bretton Woods system. Hayek’s vision of free competition in currency appeared to be no more than an academic dream: Who would allow “private money” to circulate in practice?

Yet fifty years later, stablecoins in the Web3 world are, in an unexpected way, reviving this dream on-chain.

 

Hayek: Return Currency to the Market

In Hayek’s view, the state monopoly over currency issuance is the root cause of modern inflation and financial cycles.

Governments use inflation to dilute debt and conceal fiscal deficits, while the public bears the cost of eroding wealth.

He proposed: “Allow private institutions to freely issue currency, and let the public freely choose which currency to use.”

The market will automatically penalize unstable and untrustworthy currency issuers, and reward those that are stable and reliable—

Much like consumers choosing goods.

 

This line of thought later came to be known as the “theory of competitive supply of money.”

In Hayek’s vision, money was no longer a “sovereign” construct coercively defined by the state,

but rather “contractual credit” generated through market competition.

However, in the 1970s, no technology existed to support this concept.

The recording, clearing, and credit verification of monetary transactions all depended on centralized institutions.

It was not until 2008, when Satoshi Nakamoto published the Bitcoin white paper,

that Hayek’s nearly forgotten book suddenly found new readers.

 

Bitcoin: A State-Disintermediated Crypto Practice

The invention of Bitcoin constituted a rebellion in monetary thought.

It does not rely on issuance by central banks or on state endorsement,

featuring a fixed total supply, open-source algorithms, and a transparent ledger.

This is precisely the nascent form of the “denationalized money” that Hayek envisioned.

 

However, Bitcoin has also exposed the first paradox of “market money”:Price stability。

Its scarcity ensures inflation resistance, yet it also leads to severe volatility—

A “free currency” that cannot serve as a stable medium of payment

will only become a speculative asset.

Hayek sought stable credit, whereas Bitcoin has delivered market frenzy.

Thus, stablecoins emerged.

 

Stablecoins: A “Revised Version” of Non-State Money

The emergence of stablecoins represents a compromise between technology and credit.

They retain the openness of decentralized systems while introducing pegging mechanisms to ensure price stability.

In this respect, they are closer to Hayek’s envisioned “private money” than Bitcoin is.

 

Based on collateralization and issuance mechanisms, stablecoins can be broadly categorized into three types:

  • Fiat-collateralized stablecoins (e.g., USDT, USDC):The issuer holds equivalent U.S. dollars or short-term debt assets in custody and issues tokens on-chain at a 1:1 ratio, redeemable upon conversion. Advantages include stability and strong liquidity; disadvantages include heavy reliance on the banking system and regulatory arrangements, resulting in a low degree of decentralization.

  • Crypto-collateralized stablecoins (e.g., DAI, LUSD):Users over-collateralize with crypto assets such as ETH or BTC to mint stablecoins on-chain; price stability is maintained through liquidation mechanisms, interest rate adjustments, and oracles. Advantages include on-chain self-discipline and transparency; disadvantages include susceptibility to crypto asset volatility and liquidation efficiency.

  • Algorithmic/hybrid stablecoins (e.g., FRAX, USDe, and the failed UST):These attempt to achieve a “soft peg” through financial engineering by adjusting supply, hedging with derivatives, or employing partial collateralization. Advantages include greater capital efficiency and decentralization; disadvantages include vulnerability during extreme market conditions, where slight design flaws can lead to a “death spiral.”

From an institutional logic perspective, these stablecoins are putting Hayek’score proposition：

  • into practice: making currency a product subject to market competition.

Institutions or communities such as Tether, Circle, and MakerDAO

have, in effect, become “private central banks.”

They issue currency and maintain its stability based on algorithms, collateral, or market trust.

Users no longer choose which currency to use based on state coercion, but rather on trust and convenience.

This is precisely the vision of "free competition in currencies" that Hayek long dreamed of.

 

However, stablecoins in practice remain separated from the ideal of "denationalized money" by three deep chasms.

(I) Pegged to the U.S. Dollar: The Illusion of Denationalization

The vast majority of stablecoins are pegged to the U.S. dollar.

Although issued by private entities, they still operate within the U.S. dollar system.

In essence, USDT represents a shadow bank using U.S. Treasury securities and commercial paper

to "digitally recreate" U.S. dollar credit on the blockchain.

This is not the denationalization of currency, but ratherthe re-colonization of the U.S. dollar。

While stablecoins appear to weaken national monetary sovereignty on the surface,

in reality, they reinforce U.S. monetary hegemony.

 

Hayek may not have anticipated that his vision of “currency competition” would,

in the reality of globalization, become a “technological extension of the U.S. dollar.”

 

(II) The Resurgence of Regulation: The Tug-of-War Between Liberty and Order

Hayek hoped that the currency market would establish self-ordering through competition,

but the systemic risks inherent in the modern financial system have made regulation indispensable.

The U.S. Securities and Exchange Commission (SEC), the Financial Crimes Enforcement Network (FinCEN), the European Union’s Markets in Crypto-Assets Regulation (MiCA), the Hong Kong Securities and Futures Commission (SFC), and others...

are all incorporating stablecoins into licensing-based regulatory regimes in various ways.

Circle has proactively sought regulatory cooperation, while MakerDAO has attempted to maintain “compliance neutrality.”

This interplay reflects a rebalancing between libertarian ideals and sovereign order.

 

The ideal of decentralization must ultimately be implemented within legal frameworks—

the denationalization of money ultimately still confronts the re-embedding of state regulation.

 

(III) Algorithmic Credit: A New Form of “Trust Economy”

Hayek believed that the market would punish bad money, but the collapse of algorithmic currencies demonstrates that

algorithmic credit does not automatically equate to market trust.

The collapse of TerraUSD (UST) revealed that "free money" can likewise self-destruct.

Algorithms cannot replace the central bank's function as lender of last resort.

The shift of credit from the state to algorithms merely represents a transition from one political belief to another.

The essence of money—an organizational form of trust—remains unchanged.

 

Nevertheless, stablecoins have, for the first time, concretized Hayek's vision on a global scale.

The "currency competition" he envisioned now occurs through network protocols:

On-chain, anyone can issue, hold, and exchange their own currency;

the market selects objects of trust through price, liquidity, and transparency;

Algorithms and smart contracts perform part of the functions that underpin credit order.

 

If Bitcoin is said to have completed the ideological enlightenment of "de-nationalization of currency",

then stablecoins constitute an institutional experiment in “non-state money.”

It is not a revolution, but a restructuring.

The state is no longer the sole creator of money;

markets, technology, and communities jointly participate in the production of credit.

 

Hayek believed that spontaneous order is the driving force behind the evolution of human institutions.

Blockchain is precisely the modern embodiment of this force.

Without central planning or sovereign coercion,

order can nonetheless emerge through code and consensus.

The existence of stablecoins demonstrates this point.

 

Conclusion: The Future of Money

A Hayekian thorough "denationalization" may never be fully realized,

but the future of money is indeed shifting from a "single-sovereign" model toward a "polycentric order."

Within this new system:

  • Sovereign currencies will continue to exist, serving as the foundation for fiscal operations and payments;

  • Stablecoins will become mediums of liquidity in cross-border and on-chain economies;

  • Algorithmic credit, collateralization with real-world assets (RWA), and central bank digital currencies (CBDCs) will coexist and compete;

  • Law and algorithms will jointly define the "trust boundaries" of money.

 

This constitutes a new form of monetary pluralism.

Hayek might be surprised to find that his "private money theory" is being reinterpreted in 21st-century China, Hong Kong, Dubai, and within the Ethereum community—

not as outright laissez-faire, but as a search for a new balance between regulation and technology.

 

Stablecoins are not the ultimate realization of Hayek’s vision,

but they prompt us to reconsider the social essence of "money":

  • Trust need not be monopolized; credit can be distributed.

In this sense, stablecoins are indeed a revival of Hayek.

Yet this time, the revived soul is not in a Viennese café,

but on the consensus network of the blockchain.