I agree with your first and second sentences completely -- but as to the "holy grail"...
Isn't Bitcoin (or Ethereum, or Solana, or whatever your L1 favorite is) itself the "internet-native stable coin" we want, except for their lack of stability? In other words, if we didn't have a need to exchange into local currency, what remaining need would there be except for lower price volatility?
Yeah, those tokens are not stable enough to use as a medium of exchange and I’m arguing that there are likely new ways to achieve stability that are better than how the US dollar is currently managed.
What ways? I'm curious. Have you written anything about this? I'd be interested in reading more of what you see as possible.
If we think about stability from first principles, then when you're talking about aggregating up billions and trillions of transactions, each of which occurs with some characteristic frequency, then the primary factors are coupling strength (how correlated or uncorrelated are those frequencies?) and bandwidth (how wide is the spread of their characteristic frequencies).
It's very popular right now to look down on the central banks for the inflationary influence of monetary policy. Less well appreciated is their role in damping volatility through decoupling (by calming herding behavior -- e.g., stopping bank runs) and increasing bandwidth (by offering the longest terms of credit and the ultimate put).
I believe you have to look all the way back to how market panics were resolved by J.P. Morgan (the person) to get a sense of how volatility in a internet-native stable coin might be addressed. I love crypto, but I don't see that crypto has fundamentally changed human nature, which means that ultimately some crypto holder will have to serve as the liquidity provider of last resort. This, in turn, raises all the same questions about centralization vs. decentralization and democratic values that we have with respect to the central banks in terms of how they handle monetary policy.
There are lots of ways… you could back it with a basket of real assets (eg gold, commodities, etc) or multiple currencies (eg to reduce the role any one central bank plays) or create a new process for delegating central bank authority (eg with better transparency). I’m not saying I have the answer but I’m quite confident that in the next few hundred years we will have digital and stable mediums of exchange that are better than the US dollar for most holders, in terms of lower inflation, more interoperable, more transparent, more stable, etc.
Isn't Bitcoin (or Ethereum, or Solana, or whatever your L1 favorite is) itself the "internet-native stable coin" we want, except for their lack of stability? In other words, if we didn't have a need to exchange into local currency, what remaining need would there be except for lower price volatility?