Stablecoins derive stability through a system. This system uses collateralization to present a fixed price. In its most simplistic form the system has $1 for every $1 in it. Unfortunately, in such a system, there is no point in the virtualization, which is called hypothecation in finance.
Hypothecated assets exist to allow asymmetric risk. Think of it this way:
* Alice runs a bank and has dollars in it.
* Bob runs a stablecoin and wants it to be backed by dollars.
* Alice says "you can mint $1 of hnUSD for every dollar I have in my bank."
* Bob mints 1 hnUSD.
* Alice invests the dollar in their bank into US treasuries to earn a yield backed by the full faith and credit of the United States Government.
* Bob is free to use his hnUSD for whatever he wants to do in his ecosystem and Alice will be able to redeem it when he brings it back to Alice's bank when she sells her US treasury.
The problem in all of these systems is actually hauntingly simple: Liquidity is king.
In the event that Bob needs dollars quickly, Alice may not be able to sell treasuries quickly. This is called a liquidity crisis.
Before we start pointing fingers at cryptocurrency, take a second and think about how banks work. All of banking is built on hypothecation and risk management. The businesses that stand the test of time in finance are the ones that manage risk most effectively. There is a time to be bullish, and a time to be bearish. Having the wisdom to know the difference is often won only with battle scars.
I am thankful for the public-private partnership that facilitates humanity's collective dream through finance. I am hopeful that we can learn the lessons of the past to not repeat history's mistakes.
The future of finance is on-chain governance/on-chain proof of reserves/on-chain liquidation.