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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 th

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.
    - lottin 1y ago
      Why would a stablecoin granting yield keep the banking system from working?
      - krrishd 1y ago
        The theory, at least, is that everyone would eventually be incentivized to move deposits out of the banking system and into this. (I am not sufficiently expert here to comment on the odds of an outcome like that)
        lottin 1y ago
        Considering that stablecoins don't pay interest to the holder, I don't know why anyone would be incentivised to move their funds into stablecoins.
- krrishd 1y ago
  > you can lend out the money you earn from selling someNiceCoin to services with higher yields. > And my expectation is that issuers of stablecoins can do even more risky types of lending than Silicon Valley Bank did. To be clear - stablecoin issuers are not allowed to "lend" the money out like a bank or a regulated lender _at all_ - much less doing "riskier" lending. Bridge and Circle still have to, by law, maintain 1:1 cash/cash-equivalent [0] reserves, which means the best they can do is things like US treasuries / money-market funds - which are also primitives accessible to consumers and businesses directly (ie. not inherently competitive). Certainly there is still great benefit to Bridge, Circle, and the customers issuing stablecoins through them - because it gets them MMF/treasury yield without having to do a "stored value" program at a bank etc - but the issuers who are converting user deposits into stablecoins are also only getting user deposits in exchange for doing useful things. People don't deposit funds into Mercury just because Mercury gives them 4% (there are plenty of places you can get 4%). You put money into Mercury for the software - this is primarily an implementation detail of how Mercury manages that money, affords to give you a competitive (4%) rate, and affords to give you great software. [0]: https://en.wikipedia.org/wiki/Cash_and_cash_equivalents https://en.wikipedia.org/wiki/Cash_and_cash_equivalents
  - ArtTimeInvestor 1y ago
    1:1 cash/cash-equivalent reserves, which means the best they can do is things like US treasuries / money-market funds Whether US Treasuries are "cash equivalent" is debatable / depends on the specifics. A dollar is worth a dollar tomorrow. A 10-year US treasury might not. Are you saying the holder of a stable coin is not taking a higher long-tail risk than the holder of a dollar in a checking account of a bank?
    - krrishd 1y ago
      Yeah that's a good flag. To be even more specific though, "cash equivalent" and the sorts of treasuries that implies are specifically short-duration ones (ie. this cash cannot be parked in a 10-year US treasury either) Cash equivalents are short-term commitments "with temporarily idle cash and easily convertible into a known cash amount" https://en.wikipedia.org/wiki/Cash_and_cash_equivalents https://en.wikipedia.org/wiki/Cash_and_cash_equivalents
Zanfa 1y ago
Everything you're describing makes sense in terms of legal requirements, but none of it seems to require any form of cryptocurrency or stablecoins.
- krrishd 1y ago
  This was also where I initially landed after finding out that the custom stablecoin could not leave my Bridge instance. I think the role that crypto plays in enabling this is as a neutral, credible storage layer on which this token can be held, that is not my Postgres database as (eg.) Bridge - these tokens still are actual ERC-20s/etc that are present on-chain, as are the wallets that hold them -- but yeah, I'm: - not sure how instrumental that actually is here - not sure if that's just incidentally the easiest structure for Bridge, whose primary business revolves around facilitating payments via stablecoin (now, as a part of Stripe)
- kikimora 1y ago
  Blockchain guarantees there is no double spend while not having one controlling entity. Legal requirements are there to do exactly the same thing - not let managers mess with other people money.
  - Zanfa 1y ago
    But there are 2 separate controlling entities in this scenario. The hypothetical company that wants to issue the stablecoin and Bridge. They have complete and full control over the money anyway, blockchain or not.

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.
  - lottin 1y ago
    Why would a stablecoin granting yield keep the banking system from working?
    - krrishd 1y ago
      The theory, at least, is that everyone would eventually be incentivized to move deposits out of the banking system and into this. (I am not sufficiently expert here to comment on the odds of an outcome like that)
      - lottin 1y ago
        Considering that stablecoins don't pay interest to the holder, I don't know why anyone would be incentivised to move their funds into stablecoins.
krrishd 1y ago
> you can lend out the money you earn from selling someNiceCoin to services with higher yields. > And my expectation is that issuers of stablecoins can do even more risky types of lending than Silicon Valley Bank did. To be clear - stablecoin issuers are not allowed to "lend" the money out like a bank or a regulated lender _at all_ - much less doing "riskier" lending. Bridge and Circle still have to, by law, maintain 1:1 cash/cash-equivalent [0] reserves, which means the best they can do is things like US treasuries / money-market funds - which are also primitives accessible to consumers and businesses directly (ie. not inherently competitive). Certainly there is still great benefit to Bridge, Circle, and the customers issuing stablecoins through them - because it gets them MMF/treasury yield without having to do a "stored value" program at a bank etc - but the issuers who are converting user deposits into stablecoins are also only getting user deposits in exchange for doing useful things. People don't deposit funds into Mercury just because Mercury gives them 4% (there are plenty of places you can get 4%). You put money into Mercury for the software - this is primarily an implementation detail of how Mercury manages that money, affords to give you a competitive (4%) rate, and affords to give you great software. [0]: https://en.wikipedia.org/wiki/Cash_and_cash_equivalents https://en.wikipedia.org/wiki/Cash_and_cash_equivalents
- ArtTimeInvestor 1y ago
  1:1 cash/cash-equivalent reserves, which means the best they can do is things like US treasuries / money-market funds Whether US Treasuries are "cash equivalent" is debatable / depends on the specifics. A dollar is worth a dollar tomorrow. A 10-year US treasury might not. Are you saying the holder of a stable coin is not taking a higher long-tail risk than the holder of a dollar in a checking account of a bank?
  - krrishd 1y ago
    Yeah that's a good flag. To be even more specific though, "cash equivalent" and the sorts of treasuries that implies are specifically short-duration ones (ie. this cash cannot be parked in a 10-year US treasury either) Cash equivalents are short-term commitments "with temporarily idle cash and easily convertible into a known cash amount" https://en.wikipedia.org/wiki/Cash_and_cash_equivalents https://en.wikipedia.org/wiki/Cash_and_cash_equivalents

Zanfa 1y ago

Everything you're describing makes sense in terms of legal requirements, but none of it seems to require any form of cryptocurrency or stablecoins.

krrishd 1y ago
This was also where I initially landed after finding out that the custom stablecoin could not leave my Bridge instance. I think the role that crypto plays in enabling this is as a neutral, credible storage layer on which this token can be held, that is not my Postgres database as (eg.) Bridge - these tokens still are actual ERC-20s/etc that are present on-chain, as are the wallets that hold them -- but yeah, I'm: - not sure how instrumental that actually is here - not sure if that's just incidentally the easiest structure for Bridge, whose primary business revolves around facilitating payments via stablecoin (now, as a part of Stripe)
kikimora 1y ago
Blockchain guarantees there is no double spend while not having one controlling entity. Legal requirements are there to do exactly the same thing - not let managers mess with other people money.
- Zanfa 1y ago
  But there are 2 separate controlling entities in this scenario. The hypothetical company that wants to issue the stablecoin and Bridge. They have complete and full control over the money anyway, blockchain or not.