Crypto-assets and decentralized finance through a financial stability lens

This is nonetheless a new mechanism of inflation which bypasses the supposed benefits of a fixed supply currency, instead letting inflation float as a hard-to-quantify measure which vaguely resembles the average inflation of the entire coin market, but is actually more like the speculative value of the market cap of each currency (e.g LTC is not really worth $1.5B, that's an abstraction off the price of its latest trades). Moreover this dilution isn't without cost, as it gives a path forward for perpetual splitting of the market into a number of currencies each with a greater chance of losing public trust in a market crash scenario - as each one has a weaker consensus requirement and requires fewer people deciding to no longer hold it before it becomes worthless. All it takes is a temporary lack of confidence - this is why the more widely held a currency is the more stable it is.

Back to tulips: though inventing a new tulip does not inflate existing tulips, any level of public support for that tulip dilutes everyone's confidence in the original tulip, and creates two more unstable tulip currencies vs just the one. This is because everyone has just a bit more doubt on which one they should hold.

"But that's decentralized then. If people lose confidence in one of those tulips - good thing you diversified in both.". Sure, except for losing confidence in one is likely to create a cascading effect of lack of confidence in the others as the public starts to rightfully doubt their magical belief that a useless commodity is valuable. Same panics happen with banks. And a big plethora of smaller currencies means the initial dominos of the panic are that much easier to push over - leading to the possibility of the entire market wiping. Tulips all the way down.

Again, not that this isn't the same process found in conventional finance. There's just additional confidence that there will be (perhaps violent) interventions to stem any such lack of confidence/panic before it becomes critical. And there's been a long history of independent currencies being shut down with the same force due to not wanting to compete.