Comment by krrishd
5 months 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)
5 months 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)
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.
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
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.
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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.
In that case, wouldnt sp500 or vanguard be bigger risks to banks existing?
I think most people think banks make money by holding your money and giving you some interest when they actually make money by bringing money into existance out of nowhere when they issue mortgages.
I don't see why not - I'm sure the banks (or others more expert than me) would argue for stablecoins being somehow distinct in this regard, but yeah don't know why eg. Vanguard wouldn't also be a credible cause of deposit flight.
(I do vaguely remember reading that banks were concerned about people moving to money-market fund products that had bank-like functionality)