Store of value is the base layer. A monetary asset must first be a reliable long-term vault before it functions as a medium of exchange or unit of account. This is the first principle of monetary hierarchy.
history-of-money-and-the-crypto-thesis
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Why 'Store of Value' Is the First and Most Critical Monetary Property
A first-principles breakdown of monetary evolution. We argue that store of value is the foundational property upon which medium of exchange and unit of account depend, and that digital scarcity is the breakthrough that finally solves it.
introduction
THE FOUNDATION
Introduction: The Monetary Hierarchy of Needs
Monetary properties form a strict hierarchy, where 'store of value' is the non-negotiable base layer for any digital asset.
Bitcoin established this precedence. Its primary narrative is digital gold, a censorship-resistant asset with a credibly neutral monetary policy. This foundational property enabled its later use for payments on layers like the Lightning Network.
Stablecoins invert the hierarchy. Assets like USDC or DAI derive value from off-chain collateral, outsourcing the store-of-value function to the US dollar. This creates a critical centralization and regulatory dependency.
Evidence: Bitcoin's market dominance persists despite higher-throughput L1s and L2s like Solana and Arbitrum. This demonstrates that settlement security and predictable scarcity, not transaction speed, anchor monetary premium.
key-trends
WHY SOV IS FOUNDATIONAL
Executive Summary: Three Non-Negotiable Truths
Monetary properties are a hierarchy, not a menu. Without a secure store of value, all other functions are built on sand.
01
The Problem: The Medium of Exchange Fallacy
Prioritizing payments over preservation is backwards. A currency that loses value cannot function as a reliable medium of exchange. This is the fatal flaw of inflationary fiat and high-emission alt-L1 tokens.
- Key Insight: You can't spend what you can't save. Volatility destroys utility.
- Historical Proof: Hyperinflationary currencies (Weimar, Zimbabwe) cease to be used for trade, proving SOV is prerequisite.
>90%
Of Failed Currencies
0
Stable MoE Without SOV
02
The Solution: Absolute Scarcity as the Anchor
Bitcoin's 21M hard cap is the only credibly neutral, protocol-enforced scarcity in existence. This creates a time-tested monetary base layer.
- Network Effect: $1.3T+ market cap and 15-year operational history provide immovable social consensus.
- Security Budget: $10B+ annualized security spend (mining rewards) makes attacking the ledger economically irrational.
21M
Absolute Cap
15 Years
Battle-Tested
03
The Consequence: Everything Else is a Derivative
Store of value is the root security. DeFi, NFTs, and L2s on insecure chains are value-extractive applications, not value-preserving foundations.
- Layer Reality: Ethereum, Solana, and others derive security from their native token's SOV premium.
- Architectural Truth: A weak SOV property means the entire stack—from bridges to DEXs—is perpetually vulnerable to capital flight and collapse.
1st
Property in Hierarchy
All
Other Props Depend On It
deep-dive
THE FOUNDATION
The Logical Dependency: Why Store of Value Comes First
Monetary properties build sequentially, and a reliable store of value is the non-negotiable prerequisite for all others.
Store of value precedes medium of exchange. A currency must be reliably storable before it is widely exchangeable. Bitcoin's adoption path proves this; its primary use case was capital preservation long before payment networks like the Lightning Network.
Scarcity and predictability anchor value. A monetary base with a verifiably fixed or predictable supply schedule, like Bitcoin's 21M cap or Ethereum's post-merge issuance, creates the confidence necessary for long-term holding. This is the credible neutrality that fiat lacks.
Volatility destroys unit of account. Without a stable store of value, price volatility makes a token useless for accounting, loans, or stablecoins. Projects like MakerDAO require a collateral asset (e.g., ETH) with proven value retention to mint DAI.
Evidence: The entire DeFi ecosystem is built atop ETH and BTC as primary collateral. Over $20B in value is locked using these assets in protocols like Aave and Compound, demonstrating their established store-of-value status.
MONETARY PROPERTY HIERARCHY
Historical Failure Modes: Store of Value Collapse Precedes All Others
A comparative analysis of monetary properties, demonstrating that a failure in the foundational 'Store of Value' property inevitably causes the collapse of all subsequent functions.
| Monetary Property | Store of Value (SoV) | Medium of Exchange (MoE) | Unit of Account (UoA) |
|---|---|---|---|
Primary Function | Preserve purchasing power over time | Facilitate transaction settlement | Provide a stable pricing benchmark |
Failure Condition | Inflation > 20% annually (hyperinflation) | Transaction finality > 1 hour or fees > 10% of tx value | Price volatility > 5% daily |
Dependency | Independent (foundational layer) | Requires functional SoV | Requires functional SoV and MoE |
Historical Collapse Trigger | Loss of scarcity (e.g., Weimar Republic, Zimbabwe Dollar) | Technical failure (e.g., network congestion) | Mathematical consequence of SoV/MoE failure |
Recovery Path | Must be re-established first (e.g., currency reform, hard fork) | Can be rebuilt on new SoV base | Emerges automatically from stable MoE |
Example Asset (Success) | Bitcoin (2100k fixed supply) | Lightning Network (Bitcoin L2) | El Salvador (BTC as legal tender) |
Example Asset (Failure) | Venezuelan Bolivar (1M% inflation) | Ethereum (2017 CryptoKitties congestion) | Any hyperinflating currency |
counter-argument
THE FIRST PRINCIPLE
Steelmanning the Opposition: "But Crypto Is Volatile!"
Volatility is a feature of nascent, high-growth assets, not a flaw in the underlying monetary property.
Store of value precedes medium of exchange. A monetary good must first be reliably held before it is widely exchanged. Bitcoin’s volatility is a scaling problem, not a design failure, as its network security and fixed supply establish the base layer for value storage.
Fiat currency volatility is hidden. The USD’s purchasing power has declined 98% since 1913. This inflationary volatility is a systemic tax, whereas crypto’s price discovery is transparent and occurs on public ledgers like Ethereum and Solana.
Stability is a protocol-layer application. Projects like MakerDAO and Aave are building algorithmic and collateralized stablecoins on-chain. The end state is a volatile base asset (BTC, ETH) securing a stack of stable monetary instruments.
Evidence: Bitcoin’s 200-week moving average has only increased for 15 years. This long-term trend demonstrates its emergent store-of-value property, overshadowing short-term volatility that scares traditional finance.
takeaways
FIRST PRINCIPLES OF MONEY
Architectural Takeaways for Builders
Stability is a feature, not a bug. If your token can't hold value, it can't function as a medium of exchange or unit of account.
01
The Volatility Trap
High volatility destroys the core utility of money. Users won't transact in an asset that loses 20% purchasing power overnight. This is why Bitcoin succeeded as SoV before any other use case.
- Key Benefit 1: Stable unit of account enables predictable contracts and pricing.
- Key Benefit 2: Reduces the need for constant hedging, lowering systemic friction.
>50%
Drawdowns Common
~0%
Adoption as Money
02
Liquidity Follows Stability
Deep, resilient liquidity pools require assets that market makers are willing to hold. A pure 'utility token' with no store of value premium sees liquidity flee during stress, causing death spirals.
- Key Benefit 1: Attracts institutional capital and long-term holders (LTHs).
- Key Benefit 2: Creates a stable collateral base for DeFi protocols like Aave and MakerDAO.
$10B+
TVL in Stable Assets
10x
Higher LTH Ratio
03
SoV as Protocol Skeleton Key
A credible store of value is the foundational asset that unlocks everything else. It's the collateral for stablecoins, the benchmark for oracle prices, and the settlement layer for cross-chain bridges like LayerZero.
- Key Benefit 1: Enables trust-minimized borrowing and lending markets.
- Key Benefit 2: Provides a neutral, high-security base layer for complex financial primitives.
First
Monetary Property
All Others
Properties Depend On It
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