Why Fiat-Backed Stablecoins Should Be Used Sparingly
Nearly all fiat-backed stablecoins are issued by companies who have shown they will freeze assets when ordered by governmental entities, or even at their own discretion. Earlier this year, in the Polygon bridge hack, the hacker in question returned all the assets they stole, except for the USDT, because Tether chose to freeze the tokens in the wallet. Circle (the maker of USDC) has also said they will freeze tokens when ordered by the US government.
While it is good that this provides possible recourse against criminal action, it is not good for central entities like these stablecoin companies to have the power to freeze assets, especially if they later choose to do it for personal reasons such as stopping a competitor (which SDAO one day may be). For our own good, we need to use a decentralized stablecoin, such as crypto-backed DAI.
There are other crypto-backed stablecoins on Ethereum that SDAO could use, such as UST, or algorithmic stablecoins such as AMPL. However, there is not a great deal of liquidity for either on Ethereum. UST is a wrapped asset on Ethereum, being native of the Terra blockchain where it is backed by Luna. AMPL has been criticized for not holding its value very well and is not as popular.
DAI is backed on Ethereum by a smart contract, cannot be frozen by centralized entities, and has a great deal of liquidity. It is for these reasons that I propose DAI be used as the primary stablecoin by SDAO for its liquidity pools and prioritized by dynasets on Ethereum whenever possible.