Hardcore Bitcoiners are understandably skeptical about Blockstream’s Liquid sidechain. But as the Bitcoin ecosystem grows, we’re going to need more services backed by Bitcoin that Bitcoin itself can’t provide. Liquid is a semi-centralized side chain that — crucially — has no unnecessary shitcoin. This blog series will discuss some of the use cases that are now possible through Specter Hardware and Specter Desktop’s integration with Liquid that might interest Bitcoiners the most.
Working Capital Stability
Before my recent visit to Bitcoin Beach in El Salvador, the price of bitcoin crashed from $60k to $30k. So my hostel didn’t want to accept my bitcoin because they got their working capital balance crushed.
Bitcoin is a great long-term treasury reserve asset but it’s too volatile to operate a small- or medium-sized business with little capital reserve. This is where stablecoins can play an important transitory role by offering short-term stability for working capital. While earnings can be moved to the Bitcoin savings stack.
Stablecoins are often the only digital fiat solution available to the world’s unbanked. Even Strike had to initially launch their El Salvador support with Tether integration because the local banks weren’t ready to integrate with them.
How do you operate a small business with a small working capital base on Bitcoin?
Remittances
Similarly, many migrants use stablecoins to send remittances back home, as I witnessed first-hand with Venezuelans working in Panama. They care little about the superior monetary characteristics of bitcoin.
For now these people just want to support their relatives with $200 of stable value. They’re fine with missing out on potential bitcoin appreciation in exchange for knowing that the value won’t yo-yo up and down. Their family members back home are relying on these funds and any loss in value can create family strife.
Unfortunately sending an Ethereum stablecoin would incur $15+ in gas fees right now. That’s a significant percentage of the total value of these relatively small remittances transactions.
San Salvador
Bitcoin-Backed Loans
Also some people choose to use their bitcoin as loan collateral in order to gain access to fiat funds, stay long Bitcoin and to avoid capital gains taxes. Some turn this fiat loan right around and use it to buy more bitcoin as a leveraged play. Others might need the fiat to pay their bills or to buy assets (e.g. a house).
But any time fiat is involved, government regulations rear their ugly head. So rather than going through the complicated, expensive regulatory hurdles, instead some emerging lending platforms such as HodlHodl arrange peer-to-peer (or better: human-to-human) loans in stablecoins with Bitcoin as collateral.
As we previously discussed in the second post in this series, the stablecoin ecosystem is largely dependent on Ethereum and TRON. For most Bitcoiners this is either somewhat unpleasant or wholly unacceptable. But since Tether is also on the Liquid sidechain, we can have all the benefits of stablecoins without having to wade into and rely on any shitcoin exchanges, MetaMask, etc. It also means that transferring stablecoins can be made much cheaper via Liquid’s low fees and still move fast enough with 2 minutes for confirmation.
Hyperbitcoinization incoming.....
In a hyperbitcoinized world we won’t need fiat stablecoins. But right now stablecoins are filling an important use case during transition, albeit imperfectly. Stablecoins on Liquid are a big improvement. It’s totally justified to have some concerns about putting value on a somewhat centralized, federated sidechain like Liquid and into a stablecoin like Tether. Everyone has to weigh their own pros and cons.
But if you need to use stablecoins, it’s worth the time to start learning how USDT works on Liquid and how you can self-custody it. See the second post for info on how to swap into Liquid Tether and how to self-custody it with Specter Desktop.
How to get started:
- Update to the latest Specter Desktop release v1.7.0
- Run a local Elements “Liquid” node (current chain size: ~17GB).
- Create a hot wallet for Liquid in Specter Desktop.
- Or check out the Liquid supporting hardware wallets: Blockstream Jade or our Specter Hardware Wallet
- You can assemble a Specter HWW yourself with off the shelf-components (see shopping list) or buy pre-assembled kits at Seedsigner’s shop or the DIYnodes shop.
