Does Crypto Create Debt?

03-02-2026

I don’t think native crypto has a concept of debt in the way traditional finance does. Cryptocurrencies are not banks that issue loans by creating money. A token does not promise repayment or yield the way debt does. If supply increases, existing holders experience dilution through inflation—but that dilution is distributed system-wide, not owed by anyone.

Inflation does have a Cantillon effect, where early recipients benefit disproportionately. However, this effect is significantly reduced in systems that use demurrage rather than expansionary issuance.

Native crypto, by default, is not debt.

DeFi Lending Is Not Banking

There are lending protocols in crypto, but they do not function like banks.

A corporation cannot borrow unlimited funds without collateral, as it often can in traditional banking systems. In DeFi, collateral is mandatory and is automatically liquidated if repayment conditions are not met. There is no unsecured credit and no balance-sheet expansion.

DeFi lending is closer to locking your own assets to access liquidity than borrowing society’s money. It does not create new credit; it merely unlocks existing value.

In this sense, DeFi resembles a pawn system, not a bank.

1. Debt-Based Money Is Inherently Inflationary

Modern banking systems create money as interest-bearing debt. This means:

  • New money enters the system already owed back
  • Repayment requires more money than was originally created
  • Continuous expansion becomes a necessity, not a choice

Inflation, in such systems, is structural rather than accidental.

This is why crypto emerged as a pocket for value:

  • A place where value can escape endless balance-sheet expansion
  • A counterweight to debt-driven monetary dilution

Crypto did not appear in a vacuum—it appeared alongside exploding global debt.

2. Inflation Is Not the Real Enemy

Inflation itself is not inherently harmful.

Inflation can be healthy when:

  • It funds real production
  • Wages rise alongside prices
  • Money circulates broadly

Historically, societies tolerated inflation when newly created money flowed to workers, builders, and creators.

3. The Real Problem: Cantillon Inflation

The problem today is how inflation enters the system.

Modern inflation works like this:

  • Money is created through banks and asset markets
  • It reaches capital owners first
  • Workers receive it last—often only a small portion—after prices have already risen

Inflation thus becomes a mechanism for wealth transfer rather than economic growth.

This is why people feel poorer even when GDP increases.

4. Crypto as a Response — but an Incomplete One

Crypto makes two correct claims:

  • Debt-based money is unstable
  • Value should not be endlessly diluted

But crypto alone is not enough.

If crypto only stores value, it risks becoming digital gold. If it does not circulate productively, it can reproduce the same inequalities it set out to escape.

5. The Real Question

Is the problem inflation—or inflation that doesn’t pay people for work?

The answer is clear: The problem is inflation that bypasses labor and rewards passive capital.

A better system would:

  • Inject money directly to people
  • Reward work, coordination, and contribution
  • Penalize hoarding through mechanisms like demurrage, decay, or use-based staking

6. One-Line Thesis

Inflation isn’t theft by itself. Inflation that flows upward instead of to workers is.