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Why you’d issue a branded stablecoin

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Re: Why you’d issue a branded stablecoin

#11

Post by oblio »

krrishd wrote: post #6
dzink wrote: post #5

(For those of us who remember what runs on a bank with your savings in it feel like) What if any protection is there, that you will be able to withdraw your money when a massive dunk in Bitcoin crashes a bunch of major holders and you want your savings back?

It's a good question - Stripe's Stablecoin Account documentation is good reference here (they denominate balances in USDB, one of these "custom stablecoins" from Bridge): https://docs.stripe.com/crypto/stablecoin-financial-accounts... " It’s always backed one-to-one by the equivalent value of US dollars held in cash and short-duration money market funds at BlackRock. " So while there are other (potentially novel) sor…

Fairly sure money market funds have risks and carry interest (interest = risk).

People found that out the hard way in 2008.

Re: Why you’d issue a branded stablecoin

#12

Post by krrishd »

oblio wrote: post #11
krrishd wrote: post #6

Earlier quoted context omitted.

It's a good question - Stripe's Stablecoin Account documentation is good reference here (they denominate balances in USDB, one of these "custom stablecoins" from Bridge): https://docs.stripe.com/crypto/stablecoin-financial-accounts... " It’s always backed one-to-one by the equivalent value of US dollars held in cash and short-duration money market funds at BlackRock. " So while there are other (potentially novel) sor…

Fairly sure money market funds have risks and carry interest (interest = risk). People found that out the hard way in 2008.

Indeed, and good call out; one likely source of the "novel" counterparty risk I allude to (though really not even novel - "different" is probably the more reasonable word).

Re: Why you’d issue a branded stablecoin

#13

Post by oblio »

dzink wrote: post #5

(For those of us who remember what runs on a bank with your savings in it feel like) What if any protection is there, that you will be able to withdraw your money when a massive dunk in Bitcoin crashes a bunch of major holders and you want your savings back?

You're asking the wrong questions. You're asking for regulation in a field that's actively working around regulation.

Re: Why you’d issue a branded stablecoin

#14

Post by ArtTimeInvestor »

krrishd wrote: post #10
ArtTimeInvestor wrote: post #9

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 offer…

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 networ…

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.

Re: Why you’d issue a branded stablecoin

#15

Post by petesergeant »

muzani wrote: post #7

I'm not sure if I'm missing the point here, but stablecoins could be exchanged for something of value at a fixed price. The USD used to be this - you could exchange it for gold. But it was more convenient to give paper money than exchange gold. A Big Mac may cost $5 now, $10 in the future. But I would like a Big Mac Coin that lets me exchange it for one Big Mac in any time in the future. It has value as long as McDon…

So, a future?

Re: Why you’d issue a branded stablecoin

#16

Post by ubjp »

ArtTimeInvestor wrote: post #14
krrishd wrote: post #10

Earlier quoted context omitted.

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 networ…

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 t…

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

Re: Why you’d issue a branded stablecoin

#17

Post by krrishd »

ArtTimeInvestor wrote: post #14
krrishd wrote: post #10

Earlier quoted context omitted.

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 networ…

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 t…

> 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

Re: Why you’d issue a branded stablecoin

#18

Post by krrishd »

ubjp wrote: post #16
ArtTimeInvestor wrote: post #14

Earlier quoted context omitted.

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 t…

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

> 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-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.

Re: Why you’d issue a branded stablecoin

#19

Post by Animats »

dzink wrote: post #5

(For those of us who remember what runs on a bank with your savings in it feel like) What if any protection is there, that you will be able to withdraw your money when a massive dunk in Bitcoin crashes a bunch of major holders and you want your savings back?

There are some real questions here. If you issue a "branded stablecoin", are you responsible if the company holding the reserves goes bust or is "hacked"? Probably. You're certain to be sued. Can't disclaim that liability. Can't be anonymous. See the new GENIUS Act [1].

[1] https://www.congress.gov/bill/119th-congress/senate-bill/158...

Re: Why you’d issue a branded stablecoin

#20

Post by ArtTimeInvestor »

krrishd wrote: post #17
ArtTimeInvestor wrote: post #14

Earlier quoted context omitted.

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 t…

> 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 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?

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