Those who follow me know that I think there is a lot to learn about stablecoins by going deep into the history of money (both private and public, both fiat and commodity). Today, let’s talk about debasement.

For modern fiat currency, we don’t think about debasement much, which is more of a journey, and focus on the destination, which is inflation. This is because there’s not much to actually debase for a fiat currency.
But debasement used to be a major concern for metallic money. Florins, Ducats, Shekels, and (the most successful though dollarizing Spanish trade and the United States) the Dollar all flourished because they existed as reputable, standardized, difficult-to-counterfeit coinage in a world awash with money that the local ruler would debase as a means of raising funds.
One of the most amusing examples of this was when Henry VIII repeatedly debased England’s coinage from 92.5% silver down to 33% by adding copper cores. As the silver wash was rubbed off, his portrait became increasingly reddish, earning him the nickname of Old Coppernose. Henry died before the coinage could reach nadir debasement of 25% silver, which occurred under the reign of his son, who certainly didn’t make the decision himself because he was 12 at the time.
Stablecoins can also be debased, because they derive their value from their “melt” value, just like a metallic coin. Of course, very few stablecoins are backed by actual metal - and those that are have not found any kind of market fit that I’m aware of - and are instead backed by a variety of financial instruments.
When the mix or quality of those financial instruments change, it’s not always obvious, unfortunately. King Henry was mocked by tradesmen as the wear and tear on his coins made it obvious he was trying to cut corners, but your local Uniswap pool or CEX order book don’t have the benefit of watching copper show through what was supposed to have been a silver coin.
For mere yieldcoins, the better term is probably “credit migration” rather than debasement. A yieldcoin is held almost entirely for yield and does not circulate, after all. But the concept is the same.
In theory, this can be solved by external monitoring or even voluntary reporting. After all, one person’s debasement is another person’s diversification strategy.
In practice, though, stablecoin debasement is hard to detect - of the top 5 stablecoin issuers, only Circle has ever been audited - robbing us all of knowing who is the present version of Old Coppernose, and relying on AMM liquidity to keep the silver plating on any copper coins circulating.
Pictured: Henry VIII coinage as it was debased that I was recently able to see in person