7 ms·

This is how I understand the uprising of stablecoins, let me know if I am wrong: One of the best businesses is to offer this service: Give me your money,

This is how I understand the uprising of stablecoins, let me know if I am wrong: One of the best businesses is to offer this service: Give me your money, I'll give it back to you later. Because then you can lend out that money to someone who offers this service: Give me your money, I'll give it back to you later. Plus some interest. You now have a business which, at almost no cost, generates money. The interest offered by the latter service. Doing so is regulated. You need to jump through a lot of hoops and you are very limited in whom you can lend out your customers' money to. But you can design the same type of business with stablecoins. By offering: Hello! I have two offerings: 1: I sell someNiceCoin for a dollar. 2: I buy someNiceCoin for a dollar. For your customer it is the same. They give you money and get it back later. But now you are not a "money holder". You are a trader. A trader of some coin you invented. You don't need to jump through so many hoops and you can lend out the money you earn from selling someNiceCoin to services with higher yields.

krrishd 1y ago
I think this is somewhat reasonable, but with plenty of asterisks / not the "arbitrage" this would imply. There is still a "real", regulated money-holder in the loop - it's just Bridge (the manager of the cash reserves backing the coin - and licensed money transmitter etc etc). Or in the case of USDC - Circle, the "money-holder" / manager of reserves (also has tons of licensed / is very regulated). And the ETH network (where the coin itself sits) for much of the tech / logistics of making that held-money usable. In fact - because neither Bridge nor Circle are banks, they can't do the fractional reserve that banks do, and are only allowed to do the 1:1 backed thing, with super regulated entities like BlackRock. "you can lend out the money you earn from selling someNiceCoin to services with higher yields" is strictly not true - they _cannot_ lend the money out, they have to store the money in ways that the end-consumers could do themselves, directly. In that frame - the "efficiency" for you as a fintech is that instead of having to work with a bank on a "stored value" program, you can just work with Bridge and Circle, whose technological primitives are leaps / bounds ahead of the bank, but more importantly - who are much more flexible to work with than the median "partner bank", because they are not banks. The whole "partner bank" ecosystem only really even scales because there are API providers like Increase.com / Unit.co etc to wrap them.
- ArtTimeInvestor 1y ago
  What you describe sounds like the opposite of my perspective. You make it sound like stablecoins offer a benefit to all sides because of better technology. My expectation is that they offer a benefit to the borrower because the borrower is less regulated and can lend out the money with higher risk and by doing so generate a higher yield. You mention "1:1 backed thing, with super regulated entities" as if that means the money is safe. But as we have seen with Silicon Valley Bank, even lending out the money to the government via bonds is not safe enough in all circumstances. And my expectation is that issuers of stablecoins can do even more risky types of lending than Silicon Valley Bank did.
  - ubjp 1y ago
    The difference is in the assumption of "higher risk". Most of this borrowing is eventually the US Govt because the stablecoins are backed by T bills. So its not as much of an arbitrage as you say. But then can you have a world where all the money is only stablecoins and backed by "something"? I think that has interesting implications for monetary supply and central banking
    - krrishd 1y ago
      > But then can you have a world where all the money is only stablecoins and backed by "something"? I think that has interesting implications for monetary supply and central banking This strikes me as among the biggest macro risks, and (IIRC) is one of the reasons banks are fighting to prohibit stablecoins from granting yield (to keep the banking system working). A different primitive that is related to stablecoin but not the same thing, popular among banks, is the "deposit token" - basically a stablecoin, but backed by bank deposits rather than 1:1 cash reserve, and operated by banks. eg. JPM's "JPMD": https://www.jpmorgan.com/payments/newsroom/kinexys-usd-digital-deposit-tokens https://www.jpmorgan.com/payments/newsroom/kinexys-usd-digit... Not sure how popular / active they are yet, but I imagine they will become a bigger deal as stablecoins are further regulated / banks push harder on their own interests.
      - 1y ago
EGreg 1y ago
“At no cost” Actually there is a lot of cost, in terms of bank reputation, loan underwriting, and finding consumers and businesses to lend to. There is an entire loan servicing department etc. Banks are allowed to keep fractional reserves and lend out money they create out of thin air. Stablecoins are not. (Hi, Terra Luna!) Stablecoin issuers like DAI even overcollateralized. That money is sitting there doing nothing. Enter… banks. USDT rebuffed the EU’s push to get them to deposit into European banks. They prefer US treasuries (and the current admin is lucky they’re doing it because the treasuries are taking a dive… and some of them are even looking into forcing partners to buy US treasuries and issue stablecoins). The GENIUS act requires stablecoin issuers essentially to keep 100% of the money in deposits and to work with US banks, and prop up the US treasuries and dollar. https://www.forbes.com/sites/ninabambysheva/2025/05/06/why-stablecoin-issuers-could-displace-japan-and-china-as-the-biggest-buyers-of-us-treasury-securities/ https://www.forbes.com/sites/ninabambysheva/2025/05/06/why-s... You see, originally, Tether (issuers of USDT, the original stablecoin) kept a lot of their collateral in Bitcoin, which was essentially creating an asset bubble / ponzi scheme where newly printed USDT propped up BTC and vice versa. But since the US government started running multi-trillion-dollar deficits every year, it has also become a ponzi scheme, just a sovereign-debt-based ponzi scheme. That’s the real play here, for a country that’s $35 trillion in debt and needs to keep demand for its treasuries going… because printing money as UBI — to trickle up, get taxed and service the debt properly — just aint in its overton window. The link below goes over exactly how a UBI could solve multiple problems at once over a few decades (help cushion the demand shocks for human labor, help make taxes on pollution and fossil fuels popular, and help the government actually pay off its debt)… but since USA probably isn’t going to do this on a federal level, it might make sense to go bottom-up, town by town: https://community.intercoin.app/t/ubi-is-not-socialism-but-it-can-rescue-late-stage-capitalism-from-itself/2938 https://community.intercoin.app/t/ubi-is-not-socialism-but-i...
choppaface 1y ago
Yes but two other considerations: 1) Assume the buyer/seller holds capital from sources that the majority of the market considers “illicit” and/or is legally sanctioned and/or physically frozen or restricted. Aka the capital can never be called (or at a discount that is unknowable) or the transaction could be later legally reversed or nullified by one or more legal entities. But of course the StableCoin market maker fails to communicate this risk. Therefore the real value of either side of the trade could be zero despite the non-zero StableCoins being transferred. Thus that’s not really a “trade” because there are hidden substantial risks. 2) Along the lines of Matt Levine “Stablecoin treasury strategy?” Consider that the buyer is a publicly listed company, and they fundraise based upon purchase of the digital asset. Then you are doing what most banks consider is not trading but fueling speculation (and normally you can’t expose average retail investors to these risks). The innovation of StableCoins is much less about Capitalism and much more about re-packaging fraud. And given how lax the prosecution of fraud was during the Financial Crisis, there’s a big meta-bet that StableCoin “traders” will never face losses.
- krrishd 1y ago
  >Assume the buyer/seller holds capital from sources that the majority of the market considers “illicit” and/or is legally sanctioned and/or physically frozen or restricted This is not feasible legally, and is where your claim falls apart. From the now-passed GENIUS act [0] which regulates the stablecoin issuer: - "Permitted payment stablecoin issuers must maintain reserves backing outstanding payment stablecoins on at least a one-to-one basis, consisting only of certain specified assets, including US dollars and short-term Treasuries." [0]: https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us https://www.lw.com/en/insights/the-genius-act-of-2025-stable...
  - cyphar 1y ago
    Their point is that if the money held in reserve are proceeds from criminal activity, it is possible for the assets to be seized or frozen by the feds (which would render them no longer backed 1-to-1 even if they were before then). The text of the law you quoted doesn't really change anything.
pjc50 1y ago
Issuing a branded stable coins of this kind lets you earn carry interest on tbills. Fine. Now, why would anyone buy a branded stable coin that explicitly doesn't promise a return? (Bonus random question: is a UK premium bond a stable coin?)
- krrishd 1y ago
  >Now, why would anyone buy a branded stable coin that explicitly doesn't promise a return? In practice, you're not even buying these (or at least - that is not the presentation). What you're actually doing is making a deposit into a "stablecoin" account at a place like Stripe (who now offers a Stripe Stablecoin Account, denominated in the USDB custom stable), Slash.com, Dakota.xyz, etc. IIRC Mercury is also a design partner of Stripe's blockchain. When you make that deposit - either from your regular bank account via ACH/wire, or via USDC - it settles into the account as the branded stablecoin. When you send funds out - you're either sending as fiat or as USDC. In short - you're not proactively "buying" the coin, and in fact - Stripe describes [0] the USDB coin as closed-loop & "not for public sale", and I think the others are the same. You're just depositing your funds into a platform, in order to use them on-platform - and the platform is holding them as a "custom stablecoin." [0]: https://docs.stripe.com/crypto/stablecoin-financial-accounts#add-money-to-your-stablecoin-balances https://docs.stripe.com/crypto/stablecoin-financial-accounts...

krrishd 1y ago

I think this is somewhat reasonable, but with plenty of asterisks / not the "arbitrage" this would imply. There is still a "real", regulated money-holder in the loop - it's just Bridge (the manager of the cash reserves backing the coin - and licensed money transmitter etc etc). Or in the case of USDC - Circle, the "money-holder" / manager of reserves (also has tons of licensed / is very regulated). And the ETH network (where the coin itself sits) for much of the tech / logistics of making that held-money usable. In fact - because neither Bridge nor Circle are banks, they can't do the fractional reserve that banks do, and are only allowed to do the 1:1 backed thing, with super regulated entities like BlackRock. "you can lend out the money you earn from selling someNiceCoin to services with higher yields" is strictly not true - they _cannot_ lend the money out, they have to store the money in ways that the end-consumers could do themselves, directly. In that frame - the "efficiency" for you as a fintech is that instead of having to work with a bank on a "stored value" program, you can just work with Bridge and Circle, whose technological primitives are leaps / bounds ahead of the bank, but more importantly - who are much more flexible to work with than the median "partner bank", because they are not banks. The whole "partner bank" ecosystem only really even scales because there are API providers like Increase.com / Unit.co etc to wrap them.

ArtTimeInvestor 1y ago
What you describe sounds like the opposite of my perspective. You make it sound like stablecoins offer a benefit to all sides because of better technology. My expectation is that they offer a benefit to the borrower because the borrower is less regulated and can lend out the money with higher risk and by doing so generate a higher yield. You mention "1:1 backed thing, with super regulated entities" as if that means the money is safe. But as we have seen with Silicon Valley Bank, even lending out the money to the government via bonds is not safe enough in all circumstances. And my expectation is that issuers of stablecoins can do even more risky types of lending than Silicon Valley Bank did.
- ubjp 1y ago
  The difference is in the assumption of "higher risk". Most of this borrowing is eventually the US Govt because the stablecoins are backed by T bills. So its not as much of an arbitrage as you say. But then can you have a world where all the money is only stablecoins and backed by "something"? I think that has interesting implications for monetary supply and central banking
  - krrishd 1y ago
    > But then can you have a world where all the money is only stablecoins and backed by "something"? I think that has interesting implications for monetary supply and central banking This strikes me as among the biggest macro risks, and (IIRC) is one of the reasons banks are fighting to prohibit stablecoins from granting yield (to keep the banking system working). A different primitive that is related to stablecoin but not the same thing, popular among banks, is the "deposit token" - basically a stablecoin, but backed by bank deposits rather than 1:1 cash reserve, and operated by banks. eg. JPM's "JPMD": https://www.jpmorgan.com/payments/newsroom/kinexys-usd-digital-deposit-tokens https://www.jpmorgan.com/payments/newsroom/kinexys-usd-digit... Not sure how popular / active they are yet, but I imagine they will become a bigger deal as stablecoins are further regulated / banks push harder on their own interests.
    - 1y ago

EGreg 1y ago

“At no cost” Actually there is a lot of cost, in terms of bank reputation, loan underwriting, and finding consumers and businesses to lend to. There is an entire loan servicing department etc. Banks are allowed to keep fractional reserves and lend out money they create out of thin air. Stablecoins are not. (Hi, Terra Luna!) Stablecoin issuers like DAI even overcollateralized. That money is sitting there doing nothing. Enter… banks. USDT rebuffed the EU’s push to get them to deposit into European banks. They prefer US treasuries (and the current admin is lucky they’re doing it because the treasuries are taking a dive… and some of them are even looking into forcing partners to buy US treasuries and issue stablecoins). The GENIUS act requires stablecoin issuers essentially to keep 100% of the money in deposits and to work with US banks, and prop up the US treasuries and dollar. https://www.forbes.com/sites/ninabambysheva/2025/05/06/why-stablecoin-issuers-could-displace-japan-and-china-as-the-biggest-buyers-of-us-treasury-securities/ https://www.forbes.com/sites/ninabambysheva/2025/05/06/why-s... You see, originally, Tether (issuers of USDT, the original stablecoin) kept a lot of their collateral in Bitcoin, which was essentially creating an asset bubble / ponzi scheme where newly printed USDT propped up BTC and vice versa. But since the US government started running multi-trillion-dollar deficits every year, it has also become a ponzi scheme, just a sovereign-debt-based ponzi scheme. That’s the real play here, for a country that’s $35 trillion in debt and needs to keep demand for its treasuries going… because printing money as UBI — to trickle up, get taxed and service the debt properly — just aint in its overton window. The link below goes over exactly how a UBI could solve multiple problems at once over a few decades (help cushion the demand shocks for human labor, help make taxes on pollution and fossil fuels popular, and help the government actually pay off its debt)… but since USA probably isn’t going to do this on a federal level, it might make sense to go bottom-up, town by town: https://community.intercoin.app/t/ubi-is-not-socialism-but-it-can-rescue-late-stage-capitalism-from-itself/2938 https://community.intercoin.app/t/ubi-is-not-socialism-but-i...

choppaface 1y ago

Yes but two other considerations: 1) Assume the buyer/seller holds capital from sources that the majority of the market considers “illicit” and/or is legally sanctioned and/or physically frozen or restricted. Aka the capital can never be called (or at a discount that is unknowable) or the transaction could be later legally reversed or nullified by one or more legal entities. But of course the StableCoin market maker fails to communicate this risk. Therefore the real value of either side of the trade could be zero despite the non-zero StableCoins being transferred. Thus that’s not really a “trade” because there are hidden substantial risks. 2) Along the lines of Matt Levine “Stablecoin treasury strategy?” Consider that the buyer is a publicly listed company, and they fundraise based upon purchase of the digital asset. Then you are doing what most banks consider is not trading but fueling speculation (and normally you can’t expose average retail investors to these risks). The innovation of StableCoins is much less about Capitalism and much more about re-packaging fraud. And given how lax the prosecution of fraud was during the Financial Crisis, there’s a big meta-bet that StableCoin “traders” will never face losses.

krrishd 1y ago
>Assume the buyer/seller holds capital from sources that the majority of the market considers “illicit” and/or is legally sanctioned and/or physically frozen or restricted This is not feasible legally, and is where your claim falls apart. From the now-passed GENIUS act [0] which regulates the stablecoin issuer: - "Permitted payment stablecoin issuers must maintain reserves backing outstanding payment stablecoins on at least a one-to-one basis, consisting only of certain specified assets, including US dollars and short-term Treasuries." [0]: https://www.lw.com/en/insights/the-genius-act-of-2025-stablecoin-legislation-adopted-in-the-us https://www.lw.com/en/insights/the-genius-act-of-2025-stable...
- cyphar 1y ago
  Their point is that if the money held in reserve are proceeds from criminal activity, it is possible for the assets to be seized or frozen by the feds (which would render them no longer backed 1-to-1 even if they were before then). The text of the law you quoted doesn't really change anything.

pjc50 1y ago

Issuing a branded stable coins of this kind lets you earn carry interest on tbills. Fine. Now, why would anyone buy a branded stable coin that explicitly doesn't promise a return? (Bonus random question: is a UK premium bond a stable coin?)

krrishd 1y ago
>Now, why would anyone buy a branded stable coin that explicitly doesn't promise a return? In practice, you're not even buying these (or at least - that is not the presentation). What you're actually doing is making a deposit into a "stablecoin" account at a place like Stripe (who now offers a Stripe Stablecoin Account, denominated in the USDB custom stable), Slash.com, Dakota.xyz, etc. IIRC Mercury is also a design partner of Stripe's blockchain. When you make that deposit - either from your regular bank account via ACH/wire, or via USDC - it settles into the account as the branded stablecoin. When you send funds out - you're either sending as fiat or as USDC. In short - you're not proactively "buying" the coin, and in fact - Stripe describes [0] the USDB coin as closed-loop & "not for public sale", and I think the others are the same. You're just depositing your funds into a platform, in order to use them on-platform - and the platform is holding them as a "custom stablecoin." [0]: https://docs.stripe.com/crypto/stablecoin-financial-accounts#add-money-to-your-stablecoin-balances https://docs.stripe.com/crypto/stablecoin-financial-accounts...