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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

by 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
        USDC gets me 4% on Coinbase, and USDB and other Bridge-issued custom stablecoins also give the customer rewards that they can pass onto the holder (thanks to MMF/similar cash equivalents behind the scenes etc). But yes - this is why banks want to prevent stablecoin issuers from being allowed to grant rewards
        RhysU 1y ago
        Meanwhile a 4-week T-bill has a 4.16% coupon equivalent with almost no counterparty risk relative to the 4% USDC. USDC should be paying more than T-bills to compensate for the counterparty risk.
        lottin 1y ago
        If I deposit dollars in a savings account I will get paid interest, but that is different from the dollar itself being an interest-bearing asset. I think the same thing applies to stablecoins. Does USDC pay interest to the holder or do I have to make a USDC deposit at Coinbase in order to get paid interest? Also, banks already offer a ton of products that generate yield. I don't see why a product that seems relatively similar to many products that banks already offer would destroy their business... unless such a product is much better than what banks offer, but that doesn't seem to be the case.
        krrishd 1y ago
        >unless such a product is much better than what banks offer, but that doesn't seem to be the case. I think you're basically correct here. I think the fear of the banks - and why they are insistent on prohibiting stablecoins from generating yield/interest (via the GENIUS act) - is that that doesn't stay true in the long-term, as stablecoins ascend as a cross-border payment/storage rail. >Does USDC pay interest to the holder or do I have to make a USDC deposit at Coinbase in order to get paid interest? I believe USDC from Coinbase is framed as "reward", and is downstream of an agreement Coinbase has with Circle to get that "reward" from Circle for all USDC deposits it holds on platform. Other "rates" you can get on centralized stablecoins tend to be similar AFAICT.

by ubjp 1y ago

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
      USDC gets me 4% on Coinbase, and USDB and other Bridge-issued custom stablecoins also give the customer rewards that they can pass onto the holder (thanks to MMF/similar cash equivalents behind the scenes etc). But yes - this is why banks want to prevent stablecoin issuers from being allowed to grant rewards
      - RhysU 1y ago
        Meanwhile a 4-week T-bill has a 4.16% coupon equivalent with almost no counterparty risk relative to the 4% USDC. USDC should be paying more than T-bills to compensate for the counterparty risk.
      - lottin 1y ago
        If I deposit dollars in a savings account I will get paid interest, but that is different from the dollar itself being an interest-bearing asset. I think the same thing applies to stablecoins. Does USDC pay interest to the holder or do I have to make a USDC deposit at Coinbase in order to get paid interest? Also, banks already offer a ton of products that generate yield. I don't see why a product that seems relatively similar to many products that banks already offer would destroy their business... unless such a product is much better than what banks offer, but that doesn't seem to be the case.
        krrishd 1y ago
        >unless such a product is much better than what banks offer, but that doesn't seem to be the case. I think you're basically correct here. I think the fear of the banks - and why they are insistent on prohibiting stablecoins from generating yield/interest (via the GENIUS act) - is that that doesn't stay true in the long-term, as stablecoins ascend as a cross-border payment/storage rail. >Does USDC pay interest to the holder or do I have to make a USDC deposit at Coinbase in order to get paid interest? I believe USDC from Coinbase is framed as "reward", and is downstream of an agreement Coinbase has with Circle to get that "reward" from Circle for all USDC deposits it holds on platform. Other "rates" you can get on centralized stablecoins tend to be similar AFAICT.