And look at the incentives of all the individual parties in such a scenario.
I think this is the only way a "stablecoin" can function as designed... but it is not possible to construct an entity that has any scalable incentive to provide the backing that would create such a coin. For that entity, it is nothing but downside.
Therefore, stable coins are a fiction on par with perpetual motion machines. In the short term there's all sorts of perpetual motion and over unity machines... in the long term, not so much.
But why would you use short-term fed paper to make money with your stake, when you could just plain buy short-term fed paper, without the risk of people "redeeming" it from you?
Backing a currency isn't about taking deposits from people. You can't back with deposits because your liabilities = assets then. You have to put your own stuff up, but then all you are doing is running the risk that people will redeem it away from you. Backing a currency is basically just giving your stuff away with extra steps.
It is yours. Again, you can't back with "deposits". If you have deposits, the depositors have a claim that encumbers the assets; you can't then "back" something with encumbered assets. You can only back a currency with unencumbered assets. And if you have unencumbered assets, why would you use them to back a currency?
I think this is the only way a "stablecoin" can function as designed... but it is not possible to construct an entity that has any scalable incentive to provide the backing that would create such a coin. For that entity, it is nothing but downside.
Therefore, stable coins are a fiction on par with perpetual motion machines. In the short term there's all sorts of perpetual motion and over unity machines... in the long term, not so much.