"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) sorts of counterparty risks - the backing is definitely more robust than (and pretty much entirely decoupled from) Bitcoin/the rest of the crypto sphere, and is closer to dropping funds off in a Fidelity money market.
Another good (early - 2023) read on this topic: "There are now two types of PayPal dollars, and one is better than the other " https://www.moneyness.ca/2023/09/there-are-now-two-types-of-...
People found that out the hard way in 2008.
[1] https://www.congress.gov/bill/119th-congress/senate-bill/158...
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 McDonald's exist and is willing to accept the coins, which is better than you can say of most crypto.
It may be a different sized burger, it may have somewhat different ingredients. Even our "classic coke" is nothing like the original coke. But this is what I'd expect from branded stablecoins.
Frankly also my initial source of disappointment when I found out what this _actually_ is.
But yeah - in the case of this post / Bridge's offering, "branded" stablecoins are still redeemable for 1 USD, the only point of the "branding" is who is entitled to the yield and for how much "program management" around the stored value (relative to eg. a "stored value" program at a partner bank).
One of the best businesses is to offer this service:
Give me your money, I'll give it back to you later.
Give me your money, I'll give it back to you later. Plus some interest.
Doing so is regulated. You need to jump through a lot of hoops and you are very limited in whom you can lend out your customers' money to.
But you can design the same type of business with stablecoins. By offering:
Hello! I have two offerings: 1: I sell someNiceCoin for a dollar. 2: I buy someNiceCoin for a dollar.
But now you are not a "money holder". You are a trader. A trader of some coin you invented. You don't need to jump through so many hoops and you can lend out the money you earn from selling someNiceCoin to services with higher yields.
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.
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.
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.
> 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 - 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.
hahahacorn•1h ago
salomonk_mur•1h ago
krrishd•1h ago
The sort of rewards you get for storing your business's cash at eg. Mercury, or using a wallet like Cash App - have to come from yield generated by the actual cash deposits, which is the sort of program that is much harder to operate / requires close ongoing partnership with partner banks / etc.
If I'm eg. Mercury, storing the dollars you (business) deposit into my platform in a "branded" stablecoin will get me the same rewards - bc it's backed 1:1 by eg. a money-market fund at Blackrock - for much less of the operational burden, _because_ I'm not participating in a stored value program at an actual bank. The alternative today is that Mercury does store it at a bank, does have to maintain a "stored value" program with that bank, and the yields are standard bank interest (rather than eg. MMF).
Moreover - through Bridge, I can withdraw fiat USD and deposit fiat USD into that "branded stablecoin", and it's just an in-app balance in the fintech app - so the fact that it's a stablecoin doesn't change my experience at all other than in conferring standard rewards. If you look at how eg. Stripe Stablecoin Account labels the balance, it just calls it "Digital dollars" - so it's not much more than a backend implementation detail, really.