Privacy is Fungibility: Why Endogenous Tokens Are Not Money

TL;DR

This paper argues that endogenous tokens like cryptoassets are not true money because they lack cash-like properties, and their reliance on the same ledger exposes users to systemic risks.

Contribution

It extends existing analysis to permissionless ledgers, classifies tokens, and demonstrates why stablecoins and endogenous tokens do not fulfill money's role.

Findings

Most blockchain economies lack a cash-like primitive.

Stablecoins do not intrinsically serve as money.

Reliance on endogenous tokens exposes holders to systemic risks.

Abstract

In this paper, we make a case that endogenous tokens such as cryptoassets are not money. First, we define and classify tokens found on public, permissionless ledgers, contrasting them with privately issued stablecoins and proposed CBDC designs. We then discuss the work of Kahn et al in Money is Privacy on cash versus simplified credit, and we extend their analysis to the situation found on most public, permissionless ledgers. Many public, permissionless ledgers utilize an account-based abstraction for balances, resulting in a default state that maps onto the most harmful models of agent interaction enumerated in Money is Privacy. The conclusion is threefold: that most blockchain economies lack a cash-like primitive; that stablecoins do not intrinsically fulfil this role; and that the reliance of a network on an endogenous token for security exposes holders even of a privacy-preserving asset to the same risk, if that asset relies on the same global ledger state as the endogenous token.