Comment by krrishd
5 months 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
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?
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